The Motley Fool

4 Top Reasons to Love Fortis Inc.

There are lots of reasons to own Fortis Inc. (TSX:FTS)(NYSE:FTS) as a long-term investment. The utility’s stable, growing dividend is one of them. Here are other top reasons to love the company.

A top, stable utility

Recently, Fortis got listed on the New York Stock Exchange. It has become one of the top 15 utilities in North America. Its recent acquisition of ITC Holdings provides a strong platform for it to grow in the electric transmission sector in the U.S.

Fortis is essentially a regulated utility that operates in nine U.S. states, five Canadian provinces, and three Caribbean countries. So, it has tremendous economic, geographic, and regulatory diversity. As a result, its returns are stable and predictable.

Successful acquisition history

Before combining with ITC, Fortis has successfully acquired other utilities. In the last few years, its focus has been on acquiring U.S. assets, including Central Hudson, which operates in Arizona, and UNS Energy, which operates in the New York state.

These acquisitions allow Fortis to earn profits in U.S. dollars, which increases its top and bottom line since the greenback is typically stronger than the loonie. In fact, from 2012 to 2015, Fortis delivered earnings-per-share growth of almost 7.7% per year.

electric power transmission

Licence: https://creativecommons.org/licenses/by/2.0/ Source: https://en.wikipedia.org/wiki/File:Romanian_electric_power_transmission_lines.jpg

Strong dividend

Fortis is a top dividend-growth stock. This year marks the 44th consecutive year that Fortis has hiked its dividend!

Fortis’s dividend-growth streak is proof that the utility maintains solid profitability in all economic environments. Moreover, it shows that management is committed and willing to share profits with shareholders in the form of dividends.

This year’s payout ratio of 70% is reasonable and sustainable. Management has already set a target to hike Fortis’s dividend per share by 6% per year through 2021.

Growth

Fortis’s dividend growth will be supported by its five-year capital program involving investments of $12.8 billion.

The investments will be diversified across three main segments: roughly 42% in Canadian and Caribbean assets, 29% in U.S. electric and gas assets, and 28% in independent transmission assets through ITC. These are all regulated assets.

Conclusion

Fortis is a great company if you want a strong, growing dividend. At $41 per share, it yields 3.9%, which is pretty good. However, the shares remain nearly fully valued. So, investors should wait for at least a 4% yield (or a maximum price of $40 per share) before considering the shares.

Other buying opportunities may present themselves–for example, if Fortis makes another acquisition in the future. After all, when it announced the acquisition of ITC, its shares fell 12% in a day, and it proved to be a buying opportunity then. In the near term, though, Fortis will be working on integrating ITC.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Kay Ng owns shares of FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.