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 had this stock since 1987 (almost 34 years), although I did buy more in later years. I have made a total return of 12.78% per year with 7.76% from capital gains. This is great for a long term return. On my original investment in 1987, I have a dividend yield of 43%. This is the value of buying a good dividend stock and keeping it.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 3.65%. The 5, 10 and historical dividend yields are also moderate at 3.34%, 3.34% and 3.84%. The dividend increases are low (under 8% per year). The dividend increases for the past 5 years is 6.8% per year. The last dividend increase was in 2020 and it was for 5.8%. There is a trade off between dividend yield and growth and I believe in having stocks with different yield/growth characteristics. They have raised their dividends 39 times in the last 39 years.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 is 75% with 5 year coverage at 71%. The DPR for CFPS is 29% with 5 year coverage at 28%. I cannot calculate the DPR for Free Cash Flow as FCF has been negative over the past 10 years.
Debt Ratios are fine, but I wish they were better. The Long Term Debt/Market Cap Ratio is high, but still under 1.00 at 0.95 and moving to a current 0.89. The Liquidity Ratio is 0.63 and if you add in Cash Flow after dividends it is 1.06 and still low. The Debt ratio is 1.58. The Leverage and Debt/Equity Ratios are fine at 2.74 and 1.74. Utility companies tend to carry a lot of debt.
The Total Return per year is shown below for years of 5 to 39 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | 6.79% | 10.84% | 6.81% | 4.04% |
| 2010 | 10 | 5.63% | 7.90% | 4.35% | 3.56% |
| 2005 | 15 | 8.27% | 8.81% | 5.21% | 3.60% |
| 2000 | 20 | 7.45% | 14.11% | 9.17% | 4.94% |
| 1995 | 25 | 6.28% | 13.35% | 8.47% | 4.89% |
| 1990 | 30 | 5.78% | 12.78% | 7.84% | 4.94% |
| 1985 | 35 | 5.85% | 12.37% | 7.35% | 5.02% |
| 1981 | 39 | 6.21% | 13.43% | 7.65% | 5.78% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 17.65, 19.36 and 21.03. The corresponding 10 year ratios are 17.43, 19.04 and 20.59. The corresponding historical ratios are 12.48, 14.05 and 15.50. The current P/E Ratio is 19.92 based on a stock price of $55.37 and EPS estimate for 2021 of $2.78. The current ratio is between the low and median 10 year ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $47.36. The 10 year low, median, and high median Price/Graham Price Ratios are 1.00, 1.00 and 1.20. The current P/GP Ratio is 1.17 based on a stock price of $55.37. The current ratio is between the median and high median 10 year ratios. 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 1.54 based on a stock price of $55.37, Book Value of $16,738M, and Book Value per Share of $35.86. The current ratio is 9% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 7.41. The current P/CF Ratio is 8.34 based on a stock price of $55.37, Cash Flow per Share estimate for 2021 of $6.64 and Cash Flow of $3,100M. The current ratio is 12.6% 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 3.84%. The current dividend yield is 3.65% based on dividends of $2.02 and a stock price of $55.37. The current dividend yield is 5% below the historical 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 3.65% based on dividends of $2.02 and a stock price of $55.37. The current dividend yield is 9% above 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 2.01. The current P/S Ratio is 2.76 based on a stock price of $55.37, Revenue estimate for 2021 of $9,353M, and Revenue per Share of $19.49. The current ratio is 37.6% above 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 still reasonable. I do like the dividend yield tests and both come out with a reasonable result. However, it would be nice if it were confirmed by the P/S Ratio test. The problem is that this company has been issuing lots of shares lately and outstanding shares are up 10.35% per year over the past 10 years. Revenue has been going up, but not Revenue per Share. All the other tests are showing the stock price as reasonable and above or below the median.
Is it a good company at a reasonable price? The stock price could still be reasonable. This is a utility stock and I am pleased with my results. However, it does have a lot of debt and is diluting the shares. I note that Money Sense has been giving this stock a C rating for the last two years. Before that it has a B rating.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (3) and Hold (8). The consensus would be a Buy. The 12 month stock price consensus is $58.56. This implies a total return of 9.41% with 5.76% from capital gains and 3.65% from dividends.
This stock has been the top pick of the last 3 analysts to comment on Stock Chase. Stock Chase gives this stock 5 starts out of 5. Sneha Nahata on Motley Fool lists this stock as one of four Canadian utility stocks that consistently raised their dividends. The executive summary on Simply Wall Street lists one risk and gives this stock 3 stars out of 5. A writer at Simply Wall Street says this stock has a fair market value of $52.57. Chris MacDonald on Baystreet, Canada says this is a stock every income-oriented investor ought to consider.
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, May 3, 2021 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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