Fortis is a leading utility company in North America with virtually 100% regulated utility assets. The company engages in regulated power generation, electric transmission, and energy distribution across North America.
The company operates through regulated utilities (99% of 2019 earnings) and non-regulated (1%) business segments. By asset type, Fortis’s assets can be divided into electric (82% of asset mix), gas (17%), and non-regulated energy infrastructure (1%).
The U.S. accounted for nearly 63% of Fortis’s business while Canada constituted 34% and the Caribbean comprised the remaining 3% in 2019. The company serves customers in 17 jurisdictions throughout Canada, the U.S., and the Caribbean.
Fortis operates through 10 utility companies such as ITC, UNS Energy, Fortis Alberta, Fortis BC, etc. With more than 130 years in business, Fortis has grown into one of the top 15 utilities in North America.
- Opportunity Score: 62
- Ticker: TSE:FTS
- Sector: Utilities
- Industry: Utilities - Regulated Electric
- Market Cap: 25.70B
- P/E: 21.09
- Dividend Yield: 3.69%
- Payout Ratio (Earnings): 77.69%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
Fortis is known for its highly regulated, low risk and diversified utility businesses. Fortis’ earnings are primarily determined under the cost of service regulation, in combination with performance-based rates in certain jurisdictions.
Through more than a century’s old existence, Fortis has developed an extensive infrastructure to deliver cost-effective energy to homes and businesses throughout North America. The company runs a geographically diverse energy delivery business consisting of regulated gas and electric, FERC-regulated electric transmission, long-term contracted hydro generation, and natural gas storage facility.
Nearly 99% of its assets are regulated utility assets. Healthy diversification, along with low-risk assets enables Fortis to focus on the local needs of customers, which in turn leads to opportunities for future growth.
Most of Fortis’s businesses are leaders in the jurisdiction they serve. The company caters to over three million utility customers (2 million electric utility customers and 1.3 million gas utility customers) across North America. It is known for providing safe, reliable, and cost-effective energy services. Given its long experience with utility customers, Fortis is in a good position to address the changing customer needs.
Fortis is growing both organically and through acquisitions. The company has more than doubled its size with the successful acquisitions of regulated utilities in the U.S., over the last five years.
Fortis is investing in its energy delivery businesses across North America to improve the reliability and delivery of cleaner energy. ITC has already connected over 6,800 MW of wind energy and over the next five years and expects to connect 2,000 MW of wind and 600 MW of solar energy across its footprint.
Q3 was marked by rate base growth at the regulated utilities, higher sales at UNS Energy, and higher hydroelectric production. Fortis derives more than 80% of its revenues that are protected by regulatory mechanisms and are derived from residential sales, which have increased as a result of WFH practices.
The company is making good progress on its Oso Grande Wind Project at UNS Energy and Wataynikaneyap Transmission Power Project. Fortis has also announced its target to reduce carbon emissions by 75% by 2019-2035.
The company will continue to expand and diversify through investment opportunities in infrastructure, renewable energy, and strategic acquisitions.
Fortis is a Canadian Dividend Aristocrat having increased its dividend for the last 47 consecutive years. This consistent track record makes it a leader in dividend growth in Canada. The company has a long history of superior shareholder returns.
Fortis sports an attractive yield of 3.9% and a payout ratio of 75%. It last raised its dividend by 6% and has compounded its dividend growth by more than 7% in the last five years. Fortis’s EPS have also grown at 9%+ in the last decade. Fortis has delivered a total shareholder return of ~1,300% and an average annualized return of 14.3% in the last two decades.
The utility business is a stable business that is very immune to the vagaries of economic fluctuations and continues to generate secure cash flow. Given its consolidated long-term capital structure, the company enjoys investment grade credit ratings from top rating agencies. Strong regulated businesses also provide enough stability to cash flow which is important for dividend growth.
Fortis has rolled out its new five-year capital plan of $19.6 billion focusing all its assets on the transmission and distribution of energy and delivering on a cleaner energy future. The capital plan is on track with $2.9 billion spent in the first nine months of FY2020. Most of the required funding for the program will come from cash from operations and regulated debt of the subsidiaries.
Fortis has a sound track record of meeting and exceeding its capital plans in the past. The capital plan is also expected to increase the rate base from $30.2 billion in 2020 to $36.4 billion by 2023 and $40.3 billion by 2025. Fortis expects long-term growth in rate base will support earnings and dividend growth. It is targeting average annual dividend growth of ~6% through 2025.
A steady growth profile and highly regulated transmission and distribution businesses should support its dividend growth streak in the future.
Fortis competes with several utility companies having a huge presence in the US and Canada. Emera Inc. is a leading North American diversified energy and services company with assets worth $30 billion.
Other large competitors are Brookfield Infrastructure Partners and Canadian Utilities, a subsidiary of ATCO. Canadian Utilities is one of the biggest utilities in Canada, with more than 90% regulated earnings. Algonquin Power & Utilities is another diversified generation, transmission, and distribution utility based in North America.
The operating model, the footprint of utilities, operating expertise, reputation, and financial strength provide Fortis an edge over the competition.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield Raw||Yield||PayoutRatio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph|
|TSE:FTS||FTS||Fortis||Utilities||Utilities - Regulated Electric||0.62||54.79||25.70||21.09||21.09||2.60||0.0369||3.69||0.7769||4||2.02||0.0949||6||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:BIP.UN||BIP.UN||Brookfield Infrastructure Partners||Utilities||Utilities - Diversified||0.61||68.63||22.85||85.68||85.68||0.80||0.0372||3.72||3.1950||4||2.04||0.1293||8||6||Tollbooth - Regulated||YES||YES||NO||NO||Canada||1|
|TSE:H||H||Hydro One||Utilities||Utilities - Regulated Electric||0.50||29.84||17.83||10.11||10.11||2.95||0.0340||3.40||0.3439||4||1.01||0.0759||3||6||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:EMA||EMA||Emera||Utilities||Utilities - Diversified||0.68||56.44||14.26||14.92||14.92||3.78||0.0452||4.52||0.6746||4||2.55||0.1050||6||9||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:CU||CU||Canadian Utilities||Utilities||Utilities - Diversified||0.64||34.13||9.32||25.91||25.91||1.32||0.0515||5.15||1.3327||4||1.76||0.1429||6||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:ALA||ALA||AltaGas||Utilities||Utilities - Regulated Gas||0.53||21.40||5.98||12.32||12.32||1.74||0.0449||4.49||0.5517||12||0.96||0.0449||3||6||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:ACO.X||ACO.X||Atco||Utilities||Utilities - Diversified||0.60||42.15||4.84||19.19||19.19||2.20||0.0425||4.25||0.8151||4||1.79||0.1668||6||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
|TSE:SPB||SPB||Superior Plus||Utilities||Utilities - Regulated Gas||0.36||14.58||2.57||34.11||34.11||0.43||0.0494||4.94||1.6744||12||0.72||0.0494||1||4||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
Utility stocks offer a safe haven, especially during turbulent times. Fortis is a well-diversified, regulated, utility business characterized by low-risk and predictable earnings.
Fortis’ strong growth profile coupled with low-risk highly regulated and geographically diversified utility business should continue to support its future growth.
The new five-year plan also supports Fortis’s investment-grade credit ratings and dividend growth targets. As a North American leader in the regulated gas and electric utility industry, Fortis is favorably placed for multiple growth opportunities at hand.