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 I have done very well in this stock. I have had it for some 32 years with a total return of 12.93% per year to the end of March 2020 with 7.98% from capital gains and 4.95% from dividends. For the stock I bought 32 years ago I am earning 39.3% on my original investment. This is investing in a dividend growth stock at its best. Also, this stock has hardly been affected by the current bear market. It is down just 1.2% year to date. It did at first go down a lot, over 22%, but has since recovered.
The dividend yields are moderate with dividend growth low. The dividend yields are moderate (2% to 4% ranges) with the current dividend yield is 3.59%. The 5, 10 and historical dividend yields are 3.34%, 3.34% and 3.93%. The dividend growth has mostly been low (below 8% per year). See chart below.
The Dividend Payout Ratios (DPR) are fine. The DPR for 2019 for EPS is 66% with 5 year coverage at 67%. The DPR for CFPS for 2019 is 30% with 5 year coverage at 27%. The DPR for Free Cash Flow cannot be calculated because of negative FCF. Wall Street Journal and Morningstar agree that FCF has been negative, but that is all. For the past 5 year they disagree on what the FCF has been. Analysts expect FCF to be positive in 2020.
Debt Ratios are normal for this stock over the long term. The Long Term Debt/Market Cap Ratio for 2019 is good at 0.86. The stock is only down less than 2% year to date, so the current ratio is also good at 0.87. The Liquidity Ratio for 2019 is 0.62. If you add in cash flow after dividends and current portion of the debt, you only get as high as 1.26. This is low as I prefer a ratio of at least 1.50. The Debt Ratio is fine at 1.60. The Leverage and Debt/Equity Ratios are fine at 2.66 and 1.66 for 2019.
The Total Return per year is shown below for years of 5 to 38 to the end of 2019. 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 chart below.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.92, 18.17 and 20.42. The corresponding 10 year ratios are 16.97, 18.61 and 20.59. The corresponding historical ratios are 11.95, 13.39 and 14.82. The current P/E Ratio is 20.07 based on a stock price of $53.19 and 2020 EPS estimate of $2.65. This stock price testing suggests that the stock price is relatively reasonable but above the median.
TD WebBroker is issuing in their reports Price/Adjusted Cash Flow of Operations per Share Ratios. The 5 year P/AFFO Ratios are 18.88, 17.70 and 19.53. The 10 year P/AFFO Ratios are 14.09, 16.63 and 18.67. The current P/AFFO Ratio is 18.28 based on 2020 AFFO of $2.91 and a stock price of $53.19. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $46.17. The 10 year low, median, and high median Price/Graham Price Ratios are 0.99, 1.10 and 1.20. The current P/GP Ratio is 1.13 based on a stock price of $53.19. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.41. The current P/B Ratio is 1.49 based on a Book Value of $16,587M, Book Value per Share of $35.76 and a stock price of $53.19. The current ratio is 5% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 3.93%. The current dividend yield is 3.59% based on a stock price of $53.19 and dividends of $1.91. The current dividend yield is 9% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 3.34%. The current dividend yield is 3.59% based on a stock price of $53.19 and dividends of $1.91. The current dividend yield is 7% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 2.27. The current P/S Ratio is 2.66 based on 2020 Revenue estimate of $9,278M, Revenue per Share of $20.03, and a stock price of $53.19. The current ratio is 50% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is reasonable to expensive. Considering we are in a bear market it is interesting that no test is showing the stock price as cheap. There are mixed reviews from the dividend yield testing with the historical test saying the stock price is above the median and the 10 year one saying it is below the median. These tests are not confirmed by the P/S Ratio test which is showing the stock price as relatively expensive. The stock is probably towards the expensive end.
Is it a good company at a reasonable price? Yes, it is a good utility stock to own for the long term. It has shown itself to be a great dividend growth utility stock. However, I do wonder if now is a good time to buy it. We are in a bear market and it seems a bit pricey.
When I look at analysts’ recommendations, I find Strong Buy (5), Buy (5), Hold (5), Underperform (1) and Sell (1). This is quite a spread of recommendations. The consensus would be a Buy. The 12 month stock price consensus is $58.00. This implies a total return of 12.63% with 9.04% from capital gains and 3.59% from dividends. This is not very different from what has been doing for a number of years.
See what analysts are saying on Stock Chase . One analyst says it is a high quality utility to own. Amy Legate-Wolfe on Motley Fool says this is a stock for Millennials. It is always interesting to look at the risk analysis on Simply Wall Street. A writer on Simply Wall Street says the company’s ROCE is similar to other electric utilities . A writer on Simply Wall Street says that the stock is selling at its intrinsic value. I heard a couple of other analysts say the same thing recently. Joseph McCarthy on The Enterprise Leader talks about institutional buys and sells of this company. The Canadian Blogger Dividend Earner did a review of this stock in February 2020.
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. 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 27, 2020 around 5 pm.
Also, on my book blog I have put a review of the book The Cowkeeper's Wish by Tracy Kasaboski and Kristen den Hartog learn more...
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