Analysts suggesting investors consider taking money off the table with Fortis Inc. (TSX:FTS)(NYSE:FTS) tend to rely on arguments that this utility’s stock price is overvalued, better investment opportunities are available elsewhere, or that a rising interest rate environment will result in an industry-wide decline with respect to utilities issues in the near to medium term. While I broadly agree with the concept that many utilities are overvalued and that better opportunities may exist for the wide gamete of utilities stocks available to investors given the current interest rate environment, I also believe that Fortis is different from the pack for a number of reasons.
Acquisitive growth strategy over four decades proven to be profitable
First off, I would like to underscore an article from fellow Fool contributor Demetris Afxentiou, who pointed out the unique growth profile of Fortis over the past 43 years. The utilities giant’s rise to become one of the top North American utilities has not resulted solely from organic growth; rather, Fortis has engaged in a series of strategic and complementary acquisitions which have positioned the company as a growth leader in the utilities space — a key differentiating factor from its peers.
The recent US$11.3 billion ITC Holdings Inc. acquisition I wrote about ended up being the catalyst for me to take a hard look at this stock. The acquisition was one of the main reasons for my strong buy recommendation on this great Canadian utility — a recommendation which remains the same today.
Solid growth outside Canada and broadly diversified revenue and earnings streams have been key factors that have allowed Fortis to raise its dividend consistently each year for more than four decades. With the company committing to annual dividend increases on the order of 6% per year for the next five years, shareholders should continue to reap the benefits of the company’s aggressive growth strategy and accretive growth profile over time — one which has not failed to impress investors in the long run. The company’s share price has increased alongside its dividend.
As an income-focused investment, my opinion is that few other income-focused investments with a comparatively low-risk profile exist in today’s overvalued stock market. While the company’s valuation ratios have increased over time in lockstep with most other investments over the past decade, Fortis’s growth profile and long-term outlook make this stock a buy-and-hold play for investors with a long investment time horizon.
Stay Foolish, my friends.
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Fool contributor Chris MacDonald has no position in any stocks mentioned.