Fortis (TSX:FTS)(NYSE:FTS) is one of the largest utilities in North America, with a sprawling portfolio of facilities located across Canada, the U.S. and the Caribbean. Utilities tend to attract income-seeking investors, which is thanks to their recurring revenue stream that is backed by regulated contracts.
While Fortis does offer those key points that investors look for, the company also has several other, less-obvious reasons why potential investors should consider investing in this utility behemoth.
Here’s a look at some of those reasons.
Fortis is a growth machine
One of the biggest misconceptions among investors is that Fortis is “just another boring utility.” In other words, Fortis provides a steady stream of income through its dividend, but has few, if any growth options. This couldn’t be further from the truth.
While Fortis does provide a growing stream of income to investors (more on that in a moment), the company has also pursued an aggressive agenda towards expansion. Each acquisition by Fortis has been progressively larger than the last and has provided a boost to earnings. The most recent major acquisition by Fortis was the 2016 acquisition of ITC Holdings, the largest independent transmission utility in the U.S. market.
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Fortis is an income machine
The income-earning potential of an investment is an important consideration, especially for long-term investors. Fortis doesn’t disappoint in this regard, as the company offers a quarterly dividend that provides a respectable 3.46% yield that has seen an incredible 45 years of consecutive, annual upticks.
Not only does Fortis offer a dividend that continues to grow, but that dividend remains secure. Looking back over the past decade on an annual basis, Fortis’s payout ratio has never surpassed 73%, and in the most recent full-year update, Fortis’s payout ratio was just 69%.
Looking towards the future, Fortis continues to forecast an average annual growth target of 6% through 2023.
Fortis is re-inventing itself
When thinking of a large utility such as Fortis, renewable energy is not likely something that comes to mind, but it should. Fortis has an ambitious, yet attainable target of generating 30% of its power generation needs from renewable sources within the next decade.
To meet that goal, Fortis is investing heavily towards new renewable facilities as well as expanding its current portfolio of facilities through its massive $3.7 billion five-year capital plan. Fortis’s Caribbean assets are already based on primarily solar energy options, and national policies in those markets are pushing to increase renewable energy generation projects further over the next decade.
Outside the Caribbean, Fortis has a bevy of hydro, solar and biofuel generation facilities. In the past four years, Fortis has seen hydroelectric generation increase by 12%, while solar generation has increased by 42%. A key addition to that portfolio is the Oso Grande wind farm under construction in New Mexico, which should be completed next year. Once fully operational, the wind farm will generate 247 MW of electricity to power 100,000 homes.
The fact that Fortis continues to invest in the future and provide investors with a handsome payout is great, but that all means nothing if the company cannot maintain that payout. Fortunately, Fortis continues to impress in that regard.
In the most recent quarter, Fortis announced adjusted net earnings of $316 million, or $0.74 per share, reflecting an increase over the $297 million, or $0.70 per share, reported in the same period last year.
Get rich. Now
Fortis has all the makings of a perfect long-term investment. The company operates in a secure segment of the market, has highly regulated contracts for nearly all of its revenue, and the company provides investors with a decent amount of growth. Adding to that appeal is the fact that from an income standpoint, there are few, if any companies on the market today that can provide handsome annual upticks consecutively for over four decades while continuing to invest in growth initiatives.
In other words, buy Fortis. Hold Fortis. Get rich.
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 Demetris Afxentiou has no position in any of the stocks mentioned.