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.
When I was updating my spreadsheet, I noticed that Revenue has been increasing well, but not Revenue per Share. For example, Revenue is up by 15.70% and 7.95% per year over the past 5 and 10 years. However, it is up by only 0.62% and is down by 1.63% per year over the past 5 and 10 years for Revenue per share.
For Revenue if, you look at 5 year running averages over the past 5 and 10 year, it is up by 13.72% and 12.81% per year. However, if you look at Revenue per Share and 5 year running averages, but it is down by 0.07% and up by 2.15% per year.
The above shows that revenue is not really growing. The difference between Revenue and Revenue per Share is because of the increase in shares over the past 5 and 10 years. The outstanding shares have increased by 14.99% and 9.745 per year over the past 5 and 10 years. There is nothing wrong with a company issuing new shares to raise money. But when you look for growth on this companies, you need to refer to per share values to see if there is growth.
The dividend yield for this company is moderate (2% to 4% range) and the increase in dividends is generally low (below 8%). The current dividend yield is 3.65%. The 5, 10 and historical median dividend yields are 3.34%, 3.38% and 4.04%. The dividend growth rates are shown in the table below.
The Dividend Payout Ratios are fine. The DPR for EPS for 2018 is 66.6% with 5 year coverage at 70%. The DPR for CFPS for 2018 is 24.5% with 5 year coverage at 28%.
Some debt ratios make the stock vulnerable. The Long Term Debt/Market Cap Ratio is too high at 1.19 for 2018. It has been above 1.00 for the last 4 years. This is a vulnerability. The Debt Ratio is fine at 1.53 with 5 year median at 1.53 also. The Leverage and Debt/Equity Ratios are fine at 2.87 and 1.87 with 5 year medians at 2.89 and 1.89. These are typical for utilities.
The Liquidity Ratio for 2018 is 0.77. This means that the current assets cannot cover the current liabilities. If you add in cash flow after dividends, it rises to 1.21. If you want a good one you have to add back in the current portion of the long term debt. This is a vulnerability for the company. It depends on cash flow to pay current liabilities. This is common with a lot of utility stocks. However, I would be happier if the ratio after adding in cash flow after dividends was at least 1.50.
On the other hand, the current liabilities are very low when compared to the assets of the company. The Asset/Current Liability ratio is 12.48. This is a good ratio.
The Total Return per year is shown below for years of 5 to 37 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 6.83% | 12.57% | 8.37% | 4.20% |
| 2008 | 10 | 5.60% | 10.17% | 6.15% | 4.02% |
| 2003 | 15 | 8.32% | 12.11% | 7.81% | 4.29% |
| 1998 | 20 | 6.95% | 12.47% | 8.11% | 4.36% |
| 1993 | 25 | 6.18% | 12.11% | 7.66% | 4.45% |
| 1988 | 30 | 5.78% | 12.56% | 7.62% | 4.94% |
| 1983 | 35 | 5.93% | 12.45% | 7.32% | 5.13% |
| 1981 | 37 | 6.22% | 13.47% | 7.69% | 5.78% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 17.69, 19.36 and 21.03. The corresponding 10 year ratios are 16.97, 18.61 and 20.50. The corresponding historical ratios are 11.70. 13.23, and 14.76. The current P/E Ratio is 18.56 based on a stock price of $49.37 and 2019 EPS estimate of $2.66. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $49.37. The 10 year low, median, and high median Price/Graham Price Ratios are 0.99, 1.20 and 1.20. The current P/GP Ratio is 1.08 based on a stock price of $49.37. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.41. The current P/B Ratio is 1.42 based on Book Value of $14,910M, Book Value per Share of $34.80 and a stock price of $49.37. The current ratio is 0.5% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get an historical median dividend yield of 4.04%. This current dividend yield is 3.65% based on a stock price of $49.37 and dividends of $1.80. The current yield is 9.8% below the historical yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 1.72. The current ratio is 2.29 based on a stock price of $49.37, Revenue estimate for 2019 of $9,246M, and Revenue per share of $21.58. The current ratio is 33% higher the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably on the high side but not at an excessive price. The P/S Ratio cannot be ignored and it is showing that the stock price is relatively expensive. The dividend yield is also saying that the stock price is above the median. The P/B Ratio testing is showing that the stock price is around the median.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (6), and Hold (6). The consensus would be a buy. The 12 month stock price consensus is $51.54. This implies a total return of 8.04% with 4.40% from capital gains and 3.65% from dividends.
See what analysts are saying about this stock on Stock Chase. Some said they liked AQN better. Joey Frenette on Motley Fool thinks this is a good stock to hold forever. Kay Ng on Motley Fool thinks that at 20 times earnings Fortis price is too high. A writer on Simply Wall Street says that ROCE for Fortis is normal for other utilities, it is too low for an investment. Michael Massai on Hermann Herald says that the company has a Piotroski F-Score of 7 which is good. The Blogger Dividend Earner likes this stock as a safe investment.
Fortis owns and operates utility transmission and distribution assets in Canada and the United States, serving more than 2.5 million electricity and gas customers. The company has smaller stakes in electricity generation and several Caribbean utilities. ITC operates electric transmission in eight U.S. states, with more than 16,000 miles of high-voltage transmission lines in operation. Its web site is here Fortis Inc.
The last stock I wrote about was about was SNC-Lavalin Group Inc (TSX-SNC, OTC-SNCAF) ... learn more. The next stock I will write about will be WSP Global Inc. (TSX-WSP, OTC-WSPOF) ... learn more on Monday, April 29, 2019 around 5 pm.
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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