Thursday, May 15, 2014

Fortis Inc.

On my other blog I am today writing about research newsletters I get and what blogs I look at continue...

I own this stock of Fortis Inc. (TSX-FTS, OTC- FRTSF). I bought this stock as Newfoundland Light and Power Co. Ltd. Class A shares in 1987. I bought more in 1995 and 1998. In 2005 I sold some Fortis from my RRSP account as I needed to get $20,000 in this account and I was concerned about the debt liquidity of this stock. However, this stock continues to be one of my big stock holdings.

I have made a return of 12.87% per year on my shares in this company with 7.72% per year from capital gains and 5.15% per year from dividends. This is a solid blue chip utility stock. Fortis Inc. brags that it has raised it dividends each year since 1972, some 42 years.

The dividend growth on this stock is at 4.4% and 9.1% per year over the past 5 and 10 years. Why the 10 year increase is so much better than the 5 year increase is because in 2007 and 2008 the company raised their dividends each of these years by 22%.

Big dividend increases is not what generally occurs for this company. The long term median rate without 2007 or 2008 is 3.92%. The dividends were last raised in 2014 and the increase was 3.2%. The 5 year dividend yield is 3.5% and the current dividend yield is 3.95%. The dividend yield is good and the dividend increases are moderate. On the stock I bought in 1987, some 26 years ago, I am making a yield on my original purchase price of 27.5%.

The Dividend Payout Ratios are good. The 5 year median DPR for earnings is 69% and the 5 year DPR for CFPS is 26.6%. The DPR for 2013 is at $71.7% for EPS and 28% for CFPS.

Outstanding shares have increased by 4.7% and 11.9% per year over the past 5 and 10 years. Outstanding shares have increased due to Stock Options, Share Issues, DRIP, Employee Share Purchase Plan and Debenture Conversions. Growth in Revenue, Earnings and Cash flow are fine, but the 5 year running averages are better than the 5 and 10 year growth. This is mainly because exactly 5 years ago was a very good year for this company.

Revenues have increased by 0.7% and 17% per year over the past 5 and 10 years. Using the 5 year running averages, Revenues are up by 11.9% and 19.1% per year over the past 5 and 10 years. Revenue per share is down by 3.8% per year and up by 4.6% per year over the past 5 and 10 years. If you look at 5 year running averages, Revenue per Share is up by 4.4% and 6.4% per year over the past 5 and 10 years.

Net Income is up by 11.38% and 19% per year over the past 5 and 10 years. Earnings per Share are up by 2.5% and 5.4% per year over the 5 and 10 years. EPS is up by 5% and 7.2% per year over the past 5 and 10 years if you use the 5 year running averages.

Cash Flow is up by 8.7% and 20.7% per year over the past 5 and 10 years. CFPS is up by 3.8% and 7.9% per year over the past 5 and 10 years. The 5 year running averages are a bit better with growth at 7.4% and 9.3% per year over the past 5 and 10 years.

The Liquidity Ratio is generally not great and the company depends on cash flow to pay current liabilities. The Liquidity Ratio for 2013 is 0.62 and if you add in cash flow after dividends, you get a ratio of 0.93. If you consider the current year portion of the long term debt, the ratio is 0.99 and if you add in cash flow after dividend it rises to 1.48. The Debt Ratio is fine at 1.55 and the Leverage and Debt/Equity Ratios are ok for a utility at 2.81 and 1.81.

As far as the Return on Equity goes, this company has never had a very high one. The 10 year median ROE is 7.4%, which is close to the 5 year median of 7.2%. The ROE on comprehensive income is not great either with a 5 year median at 7.0%. The ROE for 2013 was at 6% and the ROE on comprehensive income for 2014 was at 7%.

I am happy with my return on this stock. It is better than I had expected. My expectation is for utility stock to return 8% total return per year with around 4% from capital gains and 4% from dividends. See my spreadsheet at fts.htm.

This is the first of two parts. The second part will be posted on Thursday, May 15, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Fortis is a diversified, international distribution utility holding company. Its regulated holdings include electric distribution utilities in five Canadian provinces and three Caribbean countries and a natural gas utility in British Columbia. Fortis owns and operates non-regulated generation assets across Canada and in Belize and Upper New York State. It also owns hotels and commercial office and retail space primarily in Atlantic Canada. Its web site is here Fortis Inc.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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1 comment:

  1. Fortis getting quite a bit of attention these past few years. They are now a Canadian aristocrat lots of attention and their growth rate looks great. Even better is their dividend growth. My wife owns fts and soon I think I will as well