Monday, December 14, 2009

Fortis Inc 2

Today, I want to continue my review one of my favorite good conservative dividend paying stock. I had written a blog awhile ago about stating a portfolio, and so I want to review some of the stocks I mentioned. See my site for this blog. I feel this is a superior stock to TransCanada, although I know a lot of analyst like TransCanada better.

I first went to the Insider Buying and Insider Selling reports. Over the past year, there has been a bit of stock buying by some directors. A number of employees have been buying stock in this company under the company’s Employee Share Purchase Plan. This does not add up to a lot, but it shows that that a variety of insider’s have confidence in this company. The company also showed confidence in the stock by increasing their dividend this year.

The current P/E is between 18 and 19 depending on whether you use last 12 months earnings or earning estimates for this year. This P/E is rather high. For this stock, the 5 year average low is 15 and the 5 year average high is 20. So, on this basis also, the P/E is currently rather high. When I look at the dividend yield, I find that the 5 year average is 3% and the current dividend yield is 3.7%. On this basis, the stock price is good.

The other ratio I look at is the Price/Book Value ratio. On this basis, the stock price is good as the current ratio is just under 90% of the 10 year average. When I look at the Graham Price, I find that it is 7% below the current stock price. The 5 year average difference between the Graham Price and the Stock price is 23%. So although the stock price is above the Graham Price, the difference is not above the 5 year average.

The above is rather a mixed bag, but it does show that the current price is a relatively reasonable one. None is showing a strong buy signal. The one strong signal is the Accrual Ratio, which at 5.9% is showing a very negative signal. The other worrying thing is the Leverage Ratio (Asset/Book Value). This is rather high at 3.4. The company has a lot of debt. Unfortunately, lots of debt is quite common with utility stocks.

When I look at the recommendations for this stock, I see calls from Strong Buy, Buy, Hold and Underperform. (See my site for information on analyst ratings.) This stock has gone up just over 7% since mid November. A lot of analysts have projected the 12 month stock price to be between $28 and $30. If this is true, I would expect the Hold ratings, as the stock may have not much farther to rise over the next year. There is a wide variance in the recommendations. I could only find one Strong Buy and one underperform, with all the other recommendations being either a Buy or Hold. It is probably a toss up on what the consensus recommendation is, but it is probably a Hold.

For the 3, 5 and 10 year periods, this stock has done better than both the TSX and the Utilities Indexes. For the 6 month period and the 1 year period, the stock has done almost as well as the Utilities Index. It is on when you look at the past year that you see that the TSX has by a long ways done better than both this stock and the Utilities Index. The thing to remember is that the charts do not include dividends and this stock’s total return has 4% coming from dividend payments.

The other thing to remember is that Utilities in general and this stock in particular are not a volatile as the TSX Index. In recessions, this stock will not go as low as the TSX and it will not have the big run up in price after the recession. Over the long term, a less volatile stock will earn more money. If a stock declines 10%, to return to the original price, it has to rise about 11.5%. However, if it goes down 25%, it has to go up some 34% to get back to the original price. If a stock goes down 50%, it must go up 100% to get back to the original price.

Personally, I am happy with Fortis as being a back-bone stock in my portfolio. I will not be buying more for the simple fact I do not allow any one stock to be too high a percentage of my portfolio. I already have more than 5% of my portfolio in this stock.

Fortis is a diversified, international distribution utility holding company. This company provides gas and electricity to customers across Canada, through regulated holdings that include a natural gas utility in British Columbia, and electric utilities in 5 provinces in Canada, and 3 Caribbean countries. It owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns and operates hotels in eight Canadian provinces as well as commercial real estate in Atlantic Canada. Its web site is www.fortisinc.com. See my spreadsheet at www.spbrunner.com/stocks/fts.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html.

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