Is Fortis Inc (TSX:FTS) Still a Buy This Holiday Season?

Fortis Inc (TSX:FTS)(NYSE:FTS) has seen strong returns this year. Is it still a buy as we head into the new year?

| More on:
edit Women wearing red sweater shopping online and using credit card at home office

Image source: Getty Images

If you’re looking for a buy and hold stock, you could do much worse than Fortis Inc (TSX:FTS)(NYSE:FTS). With a 132% cumulative 10 year return, it has outperformed the TSX by 74% over the same period. However, the real benefit of this stock is not capital gains, but also income. With a 44-year track record of raising its dividend–without raising the payout ratio–Fortis is a dividend investor’s best friend. A quick look at the 10-year payout history is all you need for proof: from 2007 to 2017, Fortis’s dividend doubled from $0.82 to $1.62 and management has plans to keep the growth going until 2022. Nice.

That said, past performance doesn’t necessarily indicate future performance. It’s far from inevitable that Fortis will keep up the growth forever. And with an earnings miss in its most recent quarter, some are wondering if the company’s best days are behind it.

So, is Fortis still a buy as we head into the holiday season? Before answering that question, let’s start by looking at some seasonal factors that may affect this company.

A winter boost?

Fortis is a utility stock, which means it provides electricity to customers in a defined service area. Utility stocks tend to have strong earnings in the winter, as people jack up their heat to fend off the cold. This may result in strong Q4 earnings for Fortis, which could in turn send the stock higher. However, because some of the company’s assets are in the Caribbean, it could get less of a winter boost than other Canadian utilities, as this region experiences mild winters.

Third quarter earnings concerns

One strike against Fortis is its Q3 results. In Q3 2018, the company earned $0.65 per share, compared to $0.66 in the same quarter of 2017. This is not a huge decline, but when people invest in utility stocks, they expect the steady growth you’d imagine a legal monopoly could pump out at will. That said, the Q3 earnings decline mainly came from losses on natural gas derivatives. This has nothing to do with cash flow, so the earnings decrease will not impact Fortis’ ability to raise its dividend. On a bright note, revenue was actually up about 7% in Q3, so the company is still growing.

Strong annual growth

When we look at Fortis’ earnings on an annual basis (as opposed to quarterly), the picture looks much better. In 2017, earnings attributable to shareholders grew from $585 million to $963 million–a 64% jump. However, I wouldn’t expect this trend to last into Fiscal 2018, as the company’s year-to-date earnings (from the quarterly reports released so far) is lagging behind the same results for 2017.

Bottom line

Fortis is a company with an illustrious history that has been running into minor trouble in recent quarters. There are many good reasons to buy this stock, not the least of which being its history of dividend increases. But the question investors need to ask themselves is whether management can keep it up if earnings continue to falter. For now I remain cautiously optimistic about Fortis.

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 Andrew Button has no position in any of the stocks mentioned.

More on Dividend Stocks

TFSA and coins
Dividend Stocks

Maximize Your Retirement Income: How to Turbocharge Your TFSA Returns

TFSA investors could pick different strategies to boost returns.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Canadian Utilities Is a “Dividend King,” But I Like This Stock Even More

Canadian Utilities (TSX:CU) stock is a solid dividend provider, but there's more to look at then just how much you're…

Read more »

Path to retirement
Dividend Stocks

Retire Rich: TFSA Stocks to Power Your Golden Years

Investing in your TFSA early has huge benefits. Here’s a look at some stocks for your TFSA that can power…

Read more »

money cash dividends
Dividend Stocks

These TSX Telecom Stocks Are Dialling Up Impressive Profits 

Two telecom stocks are dialing up dividend profits for shareholders while inflation and interest are slowing dividends for some companies.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Dividend Stocks

2 Top Canadian Energy Stocks to Buy Right Now

Blue-chip TSX stocks like these two Canadian energy sector giants can help you generate substantial long-term wealth growth.

Read more »

edit Safety First illustration
Dividend Stocks

Safeguarding Your Wealth: 5 Safe Stocks to Buy in a Rising Interest Rate Market

Established companies like the Canadian National Railway tend to be relatively safe in tough economic conditions.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $288 in Monthly Income

It can be hard to invest when you don't have any cash, so create some from this passive-income method and…

Read more »

Dividend Stocks

2023 TFSA Contribution Time: 2 Dividend Stocks to Buy With $6,500

Buy these two great dividend stocks in your TFSA as a part of a diversified portfolio if you haven't already.

Read more »