Dividend Kings In Focus: Fortis

Up to date on November 4th, 2024 by Aristofanis Papadatos

The Dividend Kings are an illustrious group of corporations. These corporations stand aside from the overwhelming majority of the market as they’ve raised dividends for at the least 50 consecutive years.

We imagine that buyers ought to view the Dividend Kings as probably the most high-quality dividend progress shares to purchase for the long run.

With this in thoughts, we created a full listing of all of the Dividend Kings.

You may obtain the complete listing, together with vital monetary metrics corresponding to dividend yields and price-to-earnings ratios, by clicking the hyperlink under:

This group is so unique that there are simply 53 corporations that qualify as a Dividend King. Fortis Inc. (FTS) just lately raised its dividend for the 51st consecutive yr, becoming a member of the listing of Dividend Kings.

This text will focus on the corporate’s enterprise overview, progress prospects, aggressive benefits, and anticipated returns.

Enterprise Overview

Fortis is Canada’s largest investor-owned utility enterprise with operations in Canada, the USA, and the Caribbean. It’s cross-listed in Toronto and New York.

Fortis trades with a present after-tax yield of three.7% (about 4.3% earlier than the 15% withholding tax utilized by the Canadian authorities). Except in any other case famous, US$ is used on this analysis report.

Fortis at present has 99% regulated property: 82% regulated electrical and 17% regulated fuel. Roughly 64% are within the U.S., 33% in Canada, and three% within the Caribbean.

Supply: Investor Presentation

Fortis reported Q2 2024 outcomes on 07/31/24. The corporate reported adjusted earnings per share (EPS) have been up 8%.

The year-to-date outcomes present an even bigger image. Over this era, Fortis grew adjusted earnings by 7%, whereas the adjusted earnings per share have been up 5%.

The utility’s 2024 capital plan of CAD$4.8 billion (roughly $3.4 billion in U.S. {dollars}) is on monitor, with almost half invested within the first six months of 2024. We anticipate Fortis to put up earnings per share of about US$2.34 within the full yr.

The rise in earnings within the third quarter was pushed by robust earnings in Arizona, reflecting new buyer charges at Tucson Electrical Energy and better retail electrical energy gross sales related to hotter climate.

Fee base progress throughout utilities and the timing of recognition of latest value of capital parameters accepted in 2023 additionally contributed to earnings progress.”

Notably, Fortis raised its quarterly dividend by 6% in September.

Development Prospects

Utility corporations are usually categorised as gradual, however regular growers. Certainly, we anticipate Fortis to develop its earnings-per-share by 5.5% yearly over the subsequent 5 years. This progress will probably be pushed by a number of elements.

After releasing its five-year capital plan of CAD$26 billion (roughly $18.7 billion in U.S. {dollars}) for 2025 to 2029, which suggests a mid-year price base progress at a compound annual progress price of ~6.5%. The corporate additionally maintained its dividend progress steerage of 4%-6% via 2029.

Supply: Investor Presentation

The capital plan contains investing in areas, corresponding to a greener and improved grid and a shift from fossil gasoline to photo voltaic and wind era. Importantly, this progress price is earlier than the affect of acquisitions, which have traditionally been vital for Fortis.

Aggressive Benefits & Recession Efficiency

Utility corporations usually profit from a number of benefits. The primary is that they normally function in a near-monopoly on the areas that they service.

As a result of demand for Fortis’s utility companies doesn’t change a lot in varied financial environments, Fortis’s outcomes have been fairly resilient via financial uncertainties, together with the one we’re experiencing wherein inflation and rates of interest are larger than current historical past.

As well as, Fortis is exclusive due to its cross-border publicity. Its well timed U.S. acquisitions of regulated utilities since 2013 have allowed Fortis to now generate greater than half of its income from that nation.

Given these built-in benefits, many utilities usually outperform different sectors of the market throughout recessions. Under are the corporate’s earnings-per-share outcomes throughout, and after, the Nice Recession:

2007 earnings-per-share: $1.32
2008 earnings-per-share: $1.52 (15% improve)
2009 earnings-per-share: $1.51 (~1% lower)
2010 earnings-per-share: $1.81 (20% improve)

The corporate grew its diluted earnings-per-share in 2008, adopted by only a minor decline in 2009, which was the worst yr of the recession. Fortis then shortly rebounded with 20% earnings progress in 2010.

Valuation & Anticipated Whole Returns

We anticipate Fortis to generate earnings-per-share of US$2.34 in 2024. On the present share value, FTS inventory trades for a price-to-earnings ratio of 18.2.

Given the corporate’s secure enterprise mannequin, we imagine honest worth is nineteen occasions earnings, which is near the typical valuation of the inventory for the final 5 years.

Reverting to our goal valuation by 2029 would end in a a number of growth, boosting annual returns by 0.9%. As well as, we anticipate annual EPS progress of 5.5% which will even contribute to shareholder returns.

Lastly, dividends will increase returns as FTS inventory at present yields 4.3%.

Supply: Investor Presentation

FTS has now raised its dividend for 51 consecutive years. Fortis’ payout ratio has historically been about 70% of earnings. The dividend is vital to administration, and we imagine it’s protected and may proceed to rise for years to return.

Subsequently, FTS is anticipated to return 10.1% per yr on common via 2029. An anticipated return above 10% qualifies FTS inventory as a purchase.

Ultimate Ideas

There’s a lot to love about Fortis, corresponding to its recession-proof enterprise mannequin, the excessive success of price improve approvals, and the lengthy historical past of dividend progress. Solely probably the most well-run companies will pay dividends for so long as Fortis has.

Shares of Fortis seem fairly valued. The corporate ought to proceed to develop earnings, and consequently its dividends, for a few years. With an anticipated return barely above 10%, the inventory is a purchase.