Canada’s ‘Old Faithful’ dividend machine

02-24-2020
Canada’s ‘Old Faithful’ dividend machine

Fortis Inc. reliably raises dividends

 

Newfoundland and Labrador-based utility company Fortis Inc. (TSX: FTS) is Canada’s version of Old Faithful, the famous geyser in Yellowstone National Park in Wyoming. The geyser can be counted on to erupt approximately every 90 minutes, to the delight of tourists and photographers. Fortis, meanwhile, can be depended on to raise its dividend every year, through good times and bad.

True to form, last September, the company announced a dividend increase of 6.1%, to $0.4775 per quarter ($1.91 annually), effective with the Dec. 1 payment. The first-quarter 2020 payment will be made on March 1, to shareholders of record on Feb. 18. The 2019 increase was the 46th consecutive year that Fortis has raised its payout, tying it with Canadian Utilities Corp. (TSX: CU) for the longest run in this country.

And it’s not going to stop anytime soon. The company is projecting annual dividend increases in the 6% range at least until 2024. Perhaps we should nickname Fortis “Old Reliable.”

Fortis has been one of my stock selections since August 2005, when it was recommended in my Internet Wealth Builder newsletter at a price of $20.80 (adjusted for a subsequent 4-for-1 share split). The dividend at that time was the equivalent of $0.57 annually, to yield 2.7%. Based on the latest increase, the forward dividend yield is 3.27%, using a share price of $58.45.

This is exactly how a top-quality dividend stock is supposed to work. Fourteen years after it was recommended, the market price is up 153%, and the yield is even higher than when it was first picked. If you bought at that time, your yield is now 9.2%. If you don’t own shares, ask yourself why not.

Perhaps it’s a lack of familiarity. Although I have frequently written about Fortis, many investors still know little or nothing about the company, despite its dividend aristocrat credentials. Perhaps it’s because the head office is in St. John’s, Newfoundland and Labrador, a long way from the glittering towers of Toronto’s Bay Street.

But make no mistake about it – this is an impressive company. Fortis runs an international utility empire with assets worth $53 billion. Its history dates back to 1885, when it was founded as the St. John’s Electric Light Company. It was renamed as Newfoundland Light and Power Company in 1924 and went public a quarter-century later, in 1949. In 1987, the company changed its name to Fortis, but its operations continued to be confined to its home province.

That changed in 1990 when Fortis acquired Maritime Electric in Prince Edward Island. In 1996, it moved into Ontario and in 1999 went international by acquiring assets in the Cayman Islands and Belize. The company continued to grow through more acquisitions in the Caribbean and across Canada and in 2012 it moved into the U.S. with a US$1.5 billion purchase of CH Energy Group, the parent company of Central Hudson Gas & Electric Corporation, a gas and electric utility in New York State.

That was just the start. The next year, Fortis announced an agreement to acquire UNS Energy, a gas and electric utility in Arizona for US$4.3 billion. In 2016, the company bought ITC Holdings Corp., the largest independent transmission utility in the United States, for US$11.3 billion.

Today, Fortis serves more than three million gas and electric customers across its system. Total revenue in 2018 was $8.4 billion.

Fourth-quarter 2019 results were consistent with a year ago, as you might expect from a utility. Adjusted net earnings were $277 million ($0.62 per share) compared to $241 million ($0.56 a share) in the same period last year.

For the fiscal year, Fortis posted adjusted earned $1,115 million ($2.55 per share). The comparable year-ago numbers were $1.066 million ($2.51 per share). There was an increase in the number of common shares outstanding in 2019, putting pressure on earnings per share.

When I first recommended buying Fortis back in 2005, I wrote: “This is a stock that offers steady and increasing cash flow and modest long-term growth potential with limited downside risk.” More than 14 years later, the same words still apply. Ask your financial advisor if it is suitable for you.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.