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Fortis: A Utility To Buy For The Long-Term

Mar. 10, 2018 8:08 AM ETFortis Inc. (FTS), FTS:CA21 Comments
Jeff Williams profile picture
Jeff Williams


  • Utilities are under pressure in a rising rate environment and trading at the lower end of their valuations.
  • Analysis of the underlying fundamentals.
  • Strengths and weaknesses that may cause volatility in an otherwise stable company.
  • Dividend growth at least through to 2022 coupled with lower-than-average payout ratio.

As the Bank of Canada has recently moved up on interest rates and the Fed is expected to move two or more times in 2018, is this the time to load up on utility stocks? My answer is "probably not". Having stated that, for the long-term investor as I am, who is looking for value, stability and income growth, I expect 2018 will provide some opportunities.

With interest rate sensitive companies such as Fortis, Inc. (NYSE:FTS), rising interest rates should create downward pressure on the stock price. As many investors of utilities, REITs and other sensitives are looking for stable income coupled with income growth, some of the competition or drain on the stock price will come from investors pulling their cash out of sensitives placing it in riskier asset classes such as cyclicals.

Even though I do believe this is a decent idea for the next year or so, if the BOC or the Fed raises rates too sharply, this will have a dampening effect on the economy. This dampening effect will be visible through an inverted yield curve. As the inverted yield curve is where the short-term yields are higher than long-term yields, this would display a recessionary environment. So, it is my opinion that the BOC (Bank of Canada) and the Fed have a tricky situation on their hands. They have to raise rates to curb inflation as the economy seems to be doing well, but if they raise rates too fast, they could create a recessionary environment. I believe if an inverted yield curve were to take place, then I think money would rush out of cyclicals and back into sensitives and defensive stocks. This is why I believe this is an opportune time to be overweight cyclicals, but analyzing and preparing yourself to add more sensitives and/or defensive stocks to your portfolio as their prices weaken.

This article was written by

Jeff Williams profile picture
Jeff is a published author and educator. He is a value/dividend investor who specializes in long term growth. He lives in a beautiful seaside town just outside Vancouver BC Canada with his wife and two children.

Analyst’s Disclosure: I am/we are long FTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may initiate a stock purchase in the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (21)

I’m going to drop it my broker (Merrill Edge) won’t let me drip it.
Praveen_Chawla profile picture
Funny. The stock market is the only market when customers run for the exits when the prices drop.
John Yau profile picture
Still drop today. It is at lowest price this year.
Jeff Williams profile picture
Thank you for the comment John,

I am looking at adding a small amount to my portfolio over the next couple of days. Just saying.

Thank you
Your chart shows a price of $42+ and Yahoo shows it at $33+. Is there that much difference in the Canadian and US dollar?
Hello Jeff,
very nice evaluation of the company. I bought in recently and see this as a cornerstone stock to carry me into retirement. I agree with your analysis and thank-you for looking at it honestly, warts and all.
I've also bought a small position in AQN as diversification in the utilities sector, which recently had a downdip but should recover nicely - again, not a homerun hitter, but should be a dependable singles hitter over the long run.
Keep up the great work.
Thanks for this article great explanation. Fortis is always recommended on BNN
We own Fortis for more then 15 years starting with 200 sh. now more than 10x . It is our second larges investment. We are retired and Fortis is paying for all my utilities plus house taxes. Fortis income keeps up with inflation for now. We have recommended Fortis to our grand children and friends
appreciate the note on fts. wondering though whether adding consideration of the fed now actively divesting its holdings acquired during the quantitative easing cycles might change your views on holding stocks of companies like fts.
Blue Vinyl Radio profile picture
bpither profile picture
Fortis is a great long term hold I picked up in 2009. Just yesterday I bought another stellar utility with a dividend yield of 4.64%, almost the highest of this century and higher than in 2009. Canadian Utilities (CU) has a 46 year long dividend growth record and their recent quarter reported record earnings and a 10% dividend increase, and I think that makes 7 x 10% yearly increases in a row. It's also Canada's highest rated utility at A-. It's so boring it barely gets a mention on BNN (our CDN business news network).

Wonderful! Embrace serotonin (feel happy) instead of dopamine (the Wall Street/Bay Street rush).

I'm not too sure about interest rates and just how high they can go. But when conventional thinking triggers a sell off - and like all utilities it has - think otherwise and hedge your bets. With all the debt in Canada you want a solid defensive strategy - a "bond proxy" with a rising payout. By bond proxy" I mean where your yield on cost reaches a point where your asset becomes "bondified" and will probably never go back to the price you bought it at after 10 years of increasing dividends. I own stocks with very high double digit yields on my original entry point and doubt very much they'll go back down to my purchase price during the next 50%+ downdraft. My heirs can pay tax on the capital gains.

However, in case interest rates do rise sharply, counter a utility with an insurer. Either way, as long as the story is still rising tax efficient income in calm or stormy weather and you bought at fair value than you can sleep well at night.

This has served me well in over 30 years of investing and am now very very retired on a "beating inflation" (and not the government massaged figures) income.
I’m long Fortis and Algonquin. The interest rate issues have presented great entry points. Same can be said of Emera. The regulated income for all three is strong and stable, and they can always do rate resets in the future should serious interest rate issues arise. The yield is great, safe, and the growth potential still there.

Great article. Always nice to have my confirmation biases confirmed ;)

The markets have really turned on some of these names. If I wasn’t already overweight on utilities, I’d add more.
Jeff Williams profile picture
The Corporation's primary business is the ownership and operation of regulated utilities. In 2017 earnings
from regulated utilities represented approximately 92% (2016 – 93%) of the Corporation's earnings from
its operating segments, excluding Corporate and Other segment expenses. Total regulated utility assets
represented approximately 97% of the Corporation's total assets as at December 31, 2017
(December 31, 2016 – 97%).

Praveen_Chawla profile picture
FFO & Dividend growth have been impressive.
Praveen_Chawla profile picture
Fortis has some preferred shares which may offer better value with dividend in the 5% range (obviously less capital appreciation potential). Does the author know the split between regulated and non-regulated income with Fortis?
Fortis IR home page states "92% earnings from regulated utilities"
Quality stock.
Jeff - that is about the clearest evaluation I have read on this site - there are no long winded explanations just short concise discussion on each point backed up by the companies numbers. Thank you very much!
4corners profile picture
I second the opinion of Snow and Ice. I'm long Fortis since the ITC acquisition, with an acquisition plan parallel with yours.
Thanks for a concise analysis.
dunnhaupt profile picture
That double-digit earnings increase AND double-digit revenue increase at last report beat just about every other utility. FTS made some great new acquisitions recently, especially ITC. I have held FTS for over 20 years.
I've owned FTS and added to my initial investment for about four years. I am reasonably satisfied with FTS's performance and its future prospects. Thank you for this posting
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