Is it a good company at a reasonable price? This is a Utility stock and it is one of the categories of stock I invest in. If you in Dividend stocks, you need this category of stock. I note that Money Sense has been giving this stock a C rating for the last three years. Before that it has a B rating. Money Sense put out a list of the top 100 Canadian Dividend Stocks and rate them A, B or C.
I own this stock of Fortis Inc (TSX-FTS, OTC-FRTSF). I am following this company as I own the stock. It was also on Mike’s site showing Dividend Paying Canadian Growth stocks. It was also on the Dividend Growth stock lists that I follow. I first bought this stock as Newfoundland Light and Power Co. Ltd. Class A shares in 1987.
When I was updating my spreadsheet, I noticed I have done well on this stock. I have had it for some 34 years and I have had a total return of 12.86% per year with 7.91% from capital gains and 4.95% from dividends.
Because they have issued shares, with shares outstanding increasing by 3.41% and 9.66% per year over the past 5 and 10 years, the Revenue increase and the Revenue per Share increase is very different. As a shareholder, it is the Revenue per Share that is important. The Revenue has increased by 6.68% and 9.69% per year over the past 5 and 10 years. The Revenue per Share has increased by 3.16% and 0.03% per year over the past 5 and 10 years.
You can also see the effect on Cash Flow too. The Cash Flow has increased by 9.06% and 12.39% per year over the past 5 and 10 years. The Cash Flow per Share has increased by 5.46% and 2.49% per year over the past 5 and 10 years. Here, again as for the Revenue per Share, the Cash Flow per Share increases are quite low.
Analysts expected a 7% increase in EPS to $2.78, however, EPS went from $2.60 to $2.61. Revenue did better compared to expectations. Analyst expect Revenue of $9,353, an increase of 4.7% and Revenue came in at $9.448, an increase of 5.7%.
If you had invested in this company in December 2011, $1001.10 you would have bought 30 shares at $33.37 per share. In December 2021, after 10 years you would have received $474.15 in dividends. The stock would be worth $1,830.90. Your total return would have been $2,305.05.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $33.37 | $1,001.10 | 30 | 10 | $474.15 | $1,830.90 | $2,305.05 |
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 3.46%. The 5, 10 and historical median dividend yields are also moderate at 3.34%, 3.35% and 3.75%. The dividend increases are low (below 8%) at 6.10% per year over the past 5 years. Dividend increases have always been in the low category.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 is 79% with 5 year coverage at 41%. The DPR for Cash Flow per Share (CFPS) for 2021 is 32% with 5 year coverage at 28%. The DPR for Free Cash Flow (FCF) cannot be calculated because of negative FCF flows.
Because this is a utility, I have DPRs for Adjusted Funds from Operations (AFFO). The DPR for AFFO for 2021 is 73% with 5 year coverage at 65%. The company also provides an Adjusted Earnings per Share (AEPS). The DPR for AEPS for 2021 are 79% with 5 year coverage at 72%.
Debt Ratios are fine, but debt is a risk. The Long Term Debt/Market Cap ratio is fine at 0.82. The Debt Ratio is fine at 1.47 although I prefer this to be 1.50 or higher and it generally is. The Leverage and Debt/Equity Ratios are fine at 2.76 and 1.76 respectively.
The Liquidity Ratio is very low at 0.57 and even adding in Cash Flow after dividends we only get to 0.97. We can get above 1.00 only by adding back the Current Portion of the Long Term Debt and then the ratio is 1.47. Utilities traditionally do have a lot of debt. The problem with a low Liquidity Ratio is that the company may not have or can raise cash went it is needed. The Debt to Cash Flow (Years) is 8.16 (and this is better at 3.00 or less. However, Assets/Current Liabilities Ratio at 12.01 is quite good.
The Total Return per year is shown below for years of 5 to 40 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 6.10% | 11.82% | 8.04% | 3.78% |
| 2011 | 10 | 5.86% | 9.77% | 6.22% | 3.55% |
| 2006 | 15 | 7.74% | 8.13% | 4.90% | 3.23% |
| 2001 | 20 | 7.67% | 12.86% | 8.59% | 4.26% |
| 1996 | 25 | 6.45% | 12.44% | 8.20% | 4.23% |
| 1991 | 30 | 5.87% | 12.61% | 8.04% | 4.57% |
| 1986 | 35 | 5.77% | 12.52% | 7.69% | 4.83% |
| 1981 | 40 | 6.20% | 13.50% | 7.88% | 5.62% |
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 17.67, 19.73 and 20.90. The corresponding historical ratios are 13.01, 14.70 and 16.18. The current P/E Ratio is 22.10 based on a stock price of $61.87 and EPS estimate for 2022 of $2.80. The current P/E Ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I have also Adjusted Earnings per Share (AEPS) values. The 5 year low, median, and high median P/AEPS Ratios are 17.36, 19.81 and 22.27 The corresponding 10 year ratios are 17.22, 19.16 and 20.29. The current P/AEPS Ratio is 22.02. The current P/AEPS Ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I have also Adjusted Funds from Operations (AFFO) values. The 5 year low, median, and high median P/AFFO Ratios are 15.75, 17.21 and 19.04. The corresponding 10 year ratios are 15.30, 17.08 and 19.10. The current P/AFFO Ratio is 19.27. This ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $48.01. The 10 year low, median, and high median Price/Graham Price Ratios are 1.00, 1.10 and 1.20. The current P/GP Ratio is 1.29 based on a stock price of $61.87. The current ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.41. The current P/B Ratio is 1.69 based on a stock price of $61.87, Book Value of $17,370M, and Book Value per Share of $36.58. The current ratio is 19.8% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have an estimated Book Value per Share (BVPS) for 2022 of $39.60. The P/B Ratio with this BVPS is 1.56 based on a stock price of $61.87 and Book Value of $18,802M. In this case the P/B Ratio is 11% 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 8.14. The current P/CF Ratio is 8.95 based on a stock price of $61.87, Cash Flow per Share estimate for 2022 of $6.91 and a Cash Flow of $3,281M. The current ratio is 10% 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 3.75%. The current dividend yield is 3.46% based on dividends of $2.14 and a stock price of $61.87. The current dividend yield is 8% 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 3.35%. The current dividend yield is 3.46% based on dividends of $2.14 and a stock price of $61.87. The current dividend yield is 3% 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 2.24. The current P/S Ratio is 2.99 based on a stock price of $61.87, Revenue estimate for 2022 of $9,815M and a Revenue per Share of $20.67. The current P/S Ratio is 33% 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 on the expensive side? The 10 year median ratio test is saying that the stock price is reasonable and below the median but the P/S Ratio test is not supporting this by saying the stock price is on the expensive side. All the other tests are saying the stock price is above the median or expensive. So, we know it is not cheap. It might be reasonable, but it is probably expensive.
Last year I said that the results of stock price testing were that the stock price was 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.
When I look at analysts’ recommendations, I find Buy (1), Hold (12), Underperform (3) and Sell (1). The consensus would be a Hold. The 12 month stock price consensus is $60.38. This implies a total return of 1.05% with 3.46% from dividends and a capital loss of 2.41% based on a stock price of 61.87.
When I looked at analysts’ recommendations last year, I found Strong Buy (6), Buy (3) and Hold (8). The consensus was a Buy. The 12 month stock price consensus was $58.56. This implies a total return of 9.41% with 5.76% from capital gains and 3.65% from dividends based on a stock price of $55.37. What happened with a move the $61.87 and a total return of 15.39% with 11.74% from capital gains and 3.65% from dividends. So last year, the analysts’ prediction was pretty good.
Analysts like this stock on Stock Chase and think it is a Buy. Stock Chase gives this stock 5 stars out of 5. Demetris Afxentiou on Motley Fool thinks this is a good defensive stock to buy. Andrew Walker on Motley Fool thinks this is a good passive income stock. The company reports its fourth quarterly results on Newswire.
A Simply Wall Street report on Yahoo Finance says that they think this stock intrinsic value is $68.59 CDN$. Simply Wall Street lists two risks with this company of interest payments are not well covered by earnings and dividend of 3.38% is not well covered by earnings.
Fortis owns and operates 10 utility transmission and distribution assets in Canada and the United States, serving more than 3.4 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 Algoma Central Corporation) ... learn more on Wednesday, May 4, 2022 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks May 2022 .... learn more on Tuesday, May 3, 2022 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.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
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