Fortis is a leading utility company in North America with 97% regulated utility assets. The company engages in regulated power generation, electric transmission, and energy distribution across North America. The company operates through regulated utilities (94% of 2018 earnings) and non-regulated (6%) business segments. More than 90% of its earnings are now from regulated utilities. By asset type, Fortis’ assets can be divided into electric (81% of asset mix), gas (16%), and non-regulated energy infrastructure (3%). The U.S. accounts for nearly 60% of Fortis’ business while Canada constitutes the remaining 40%. The company serves customers in 16 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.Investment Data
- Opportunity Score: 66
- Ticker: TSE:FTS
- Sector: Utilities
- Industry: Utilities - Regulated Electric
- Market Cap: 24.25B
- P/E: 19.57
- Dividend Yield: 3.66%
- Payout Ratio (Earnings): 71.54%
- 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, with more than 90% of its earnings coming from regulated sources. 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. Fortis 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, enable Fortis to focus on the local needs of customers, which in turn leads to opportunities for future growth.
Most of its businesses are leaders in the jurisdiction they serve. Fortis caters to over three million utility customers (2 million electric utility customers and 1.3 million gas utility customers) across North America. The company 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 three regulated utilities in the U.S., over the last five years.
The company is increasing its capital program focusing on growing its regulated businesses. This increase is driven by regulated investments in renewable energy, transmission infrastructure, and grid modernization. Fortis’ companies like UNS, TEP and ITC continue to make necessary grid investments in and around their existing operating territories and towards constructing large renewable energy resources. Fortis’ major capital projects for 2019 are progressing well. It is also investing in its energy delivery businesses across North America to improve reliability and delivery of cleaner energy. The company is focusing on initiatives to lower energy use and reducing energy bills for its customers.
The company is well positioned to gain from rising trends of LNG use for transportation, march towards renewables, grid resilience, battery storage, EVs, etc.
Fortis is a Canadian Dividend Aristocrat having increased its dividend for the last 46 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 3.3%. It last raised its dividend by 6% and has compounded its dividend growth by more than 7% in the last three years. Its payout ratio is also reasonable at 52%. Fortis is planning to grow its dividends by 6% annually through 2024. It has been successful in reducing its payout ratio from 73% to nearly 64% over the last decade while growing its EPS at a rate of 8%+ CAGR over the last five years. The company expects long-term sustainable ~7% rate base growth to support dividend in the future and has registered a rate base CAGR of 6% in the last five years.
Utility business is a stable business which 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 $18.3 billion which will recognize renewables and natural gas as foundational energy sources. The five-year capital plan is mostly regulated with 99% of investments expected in regulated businesses. The capital plan will grow rate-base by nearly $10 billion over the next five years. 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 company has ample opportunities to expand and diversify through investment opportunities in infrastructure, renewable power and strategic acquisitions. A steady growth profile and highly regulated transmission and distribution businesses should support dividend growth streak in the future.
Fortis competes with several utility companies having a huge presence in the US and Canada. Emera TSE:EMA is a leading North American diversified energy and services company with assets worth $30 billion. Other large competitors are Brookfield Infrastructure TSE:BIP.UN and Canadian Utilities, a subsidiary of Atco Ltd. Canadian Utilities TSE:CU is one of the biggest utilities in Canada, with more than 90% regulated earnings.
Algonquin Power & Utilities is a diversified utility company in North America with $10 billion in total assets. The company engages in the generation, transmission, and distribution of water, gas, and electricity to communities across the U.S. It also has renewable energy business. As a growing renewable energy company, Algonquin Power owns a strong portfolio of long term contracted wind, solar and hydroelectric assets with 1.5 GW of total installed capacity. The company through its subsidiaries owns an equity interest in more than 39 clean energy facilities. Algonquin Power operates through two subsidiaries: Liberty Utilities (64% of 2018 earnings) and Liberty Power (36%). The company has more than 50 power generation facilities and 20 utilities across North America. Algonquin’s utility business serves nearly 770,000 customers in twelve states across the U.S., through 1,200 miles of electrical transmission lines and 100 miles of natural gas transmission pipelines.TSE:AQN is another diversified generation, transmission and distribution utility based in North America. Operating model, footprint of utilities, operating expertise, reputation and financial strength provide Fortis an edge over 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||0.66||52.19||24.25||19.57||19.57||2.67||0.0366||3.66||0.7154||4||1.91||0.0946||6||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:BIP.UN||BIP.UN||Brookfield Infrastructure Partners||Utilities||Utilities - Diversified||0.67||63.91||20.11||79.79||79.79||0.80||0.0444||4.44||3.5485||4||2.15||0.1365||8||6||Tollbooth - Regulated||YES||YES||NO||NO||Canada||1|
|TSE:H||H||Hydro One||Utilities||Utilities - Regulated Electric||0.55||27.14||16.22||9.14||9.14||2.97||0.0374||3.74||0.3415||4||1.01||0.0792||3||6||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:EMA||EMA||Emera||Utilities||Utilities - Diversified||0.73||54.06||13.38||15.96||15.96||3.39||0.0472||4.72||0.7522||4||2.55||0.1070||6||9||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:CU||CU||Canadian Utilities||Utilities||Utilities - Diversified||0.72||31.67||8.64||14.40||14.40||2.20||0.0550||5.50||0.7916||4||1.74||0.1464||6||8||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:ALA||ALA||AltaGas||Utilities||Utilities - Regulated Gas||0.62||16.92||4.73||11.74||11.74||1.44||0.0567||5.67||0.6667||12||0.96||0.0567||3||6||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:ACO.X||ACO.X||Atco||Utilities||Utilities - Diversified||0.69||39.05||4.49||11.96||11.96||3.27||0.0446||4.46||0.5324||4||1.74||0.1688||6||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
|TSE:SPB||SPB||Superior Plus||Utilities||Utilities - Regulated Gas||0.35||12.30||2.17||62.96||62.96||0.20||0.0585||5.85||3.6000||12||0.72||0.0585||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. Fortis is well-positioned to execute on the new five-year capital plan and improve the credit profile of the company. As a North American leader in the regulated gas and electric utility industry, Fortis is favourably placed for multiple growth opportunities at hand.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.