3 Good Reasons Conservative Investors Should Own Fortis Inc.

Other than Fortis Inc.’s (TSX:FTS) U.S. portfolio, which boosts earnings with a strong U.S. dollar, there are other reasons to own the utility in your portfolio.

| More on:
The Motley Fool

Utilities don’t come up as popular ideas for investments. Yet three out of the top five publicly traded Canadian companies with the longest dividend-growth streaks are utilities.

Among the utilities, Fortis Inc. (TSX:FTS) offers one of the most stable returns with the least volatility. Some stocks are known to be especially volatile, but Fortis is the opposite. It’s especially stable because it offers essential products and services, which are needed no matter what part of the economic cycle we’re at.

Stability

Fortis has 3.2 million gas and electric customers across nine utility operations in Canada, the United States, and the Caribbean. It has about 96% of regulated assets that generate stable returns.

During the last recession, from its peak in 2008 to its trough in 2009, Fortis’s share price declined almost 26%.

If you think that was bad, think about Canada’s banking leader, Royal Bank of Canada, which declined about 50%, and Alimentation Couche-Tard, which declined 40% and has become a growth phenomenon by appreciating more than 800% since 2010.

Investors have to mentally prepare themselves for a market-wide decline at any time. However, having Fortis in their portfolios should help mitigate such an impact.

Steady growth

Since Fortis is virtually a regulated utility, its return on equity (ROE) is set. In its June presentation it indicated it earns an ROE of 8.3-10% for its various utilities.

Once the ITC acquisition completes, it’s expected to be accretive to Fortis’s earnings per share. It’s a positive that ITC’s allowed ROE is greater than 11%.

Fortis has already entered the U.S. market by acquiring Central Hudson and UNS Energy in the last few years. Those acquisitions proved to be excellent investments as their allowed ROE tends to be slightly higher than Fortis’s Canadian utilities. Fortis also benefits from a strong U.S. dollar against the Canadian dollar.

Fortis also has a $9 billion capital plan from 2015 through 2020 that should bring its rate base to $20 billion.

As a result of its regulated assets, U.S. expansion, and capital program, Fortis should continue to grow steadily with predictable returns.

Dividend growth

Fortis has already increased its dividend for 42 consecutive years. And that dividend-growth streak should continue as the utility guides to increase its dividend by 6% per year through 2020.

At $42.60 per share, Fortis yields 3.5% with a sustainable payout ratio of about 69%.

Conclusion

If you’re a conservative investor looking for stability and peace of mind, consider owning Fortis in your portfolio. It is especially a great buy on uncommon occasions where it yields 4% or higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of ALIMENTATION COUCHE-TARD INC and FORTIS INC. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian dollars are printed
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $15,000

If you have a windfall of $15,000, putting it in a TFSA is a great start. But investing it in…

Read more »

woman retiree on computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

This TSX stock has given investors a dividend increase every year for decades.

Read more »

calculate and analyze stock
Dividend Stocks

8.7% Dividend Yield: Is KP Tissue Stock a Good Buy?

This top TSX stock is certainly one to consider for that dividend yield, but is that dividend safe given the…

Read more »

grow money, wealth build
Dividend Stocks

TELUS Stock Has a Nice Yield, But This Dividend Stock Looks Safer

TELUS stock certainly has a shiny dividend, but the dividend stock simply doesn't look as stable as this other high-yielding…

Read more »

profit rises over time
Dividend Stocks

A Dividend Giant I’d Buy Over TD Stock Right Now

TD stock has long been one of the top dividend stocks for investors to consider, but that's simply no longer…

Read more »

analyze data
Dividend Stocks

Top Financial Sector Stocks for Canadian Investors in 2025

From undervalued to powerfully bullish, quite a few financial stocks might be promising prospects for the coming year.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

3 TFSA Red Flags Every Canadian Investor Should Know

Day trading in a TFSA is a red flag. Hold index funds like the Vanguard S&P 500 Index Fund (TSX:VFV)…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

1 Magnificent Canadian Stock Down 15% to Buy and Hold Forever

Magna stock has had a rough few years, but with shares down 15% in the last year (though it's recently…

Read more »