We continue our Super Stocks series this week by adding a company that produces and delivers services you can't live without - or at least you wouldn't want to. Plus, it has the longest record in the country of dividend increases. If this sounds like exactly the kind of stock you want to own in turbulent times, it is. Read on.
Fortis Inc. (TSX, FTS, OTC: FRTSF)
The business: The two products you can't live without, especially in our climate, are electricity and natural gas. Those are the two main businesses of Fortis, a company based in St. John's, Newfoundland that operates across Canada as well as in New York State and the Caribbean.
Fortis is the largest investor-owned distribution utility in Canada, serving more than two million gas and electricity customers. Its regulated holdings include electric utilities in five Canadian provinces and two Caribbean countries. Several years ago it acquired Teresen, a natural gas utility in British Columbia which has proved to be highly profitable. As well, Fortis has interests in hotels and commercial real estate. Subsidiary companies include FortisAlberta, FortisBC, Newfoundland Power, Fortis Generation, Maritime Electric, Caribbean Utilities (59% owned), Fortis TCI, FortisOntario, and Fortis Properties.
Fortis has total assets of approximately $13 billion. Total revenue for the 2010 fiscal year was approximately $3.7 billion. The company has about 5,000 employees.
The security: We recommend the common shares of Fortis which trade on the Toronto Stock Exchange under the symbol FTS. They are also listed on the over-the-counter Pink Sheets in the U.S. under the symbol FRTSF.
Why we like it: For starters, this is a highly defensive stock. That doesn't mean it won't lose some value in a broad market retreat but it will do much better than most. The nature of the business is such that revenues will hold up in a downturn, although growth will slow.
Second, this is a great income stock. The shares currently yield 3.5%. And you can expect that payout to keep rising. Fortis has increased its dividend for 39 consecutive years, the longest streak of any Canadian company.
Financial highlights: Fortis reported second quarter net earnings attributable to shareholders of $58 million ($0.33 per share), compared to $55 million ($0.32 per share, for the second quarter of 2010. Net earnings attributable to shareholders for the first half of 2011 were $175 million ($1 per share), up $20 million from earnings of $155 million ($0.90 per share), for the first half of last year.
Cash flow from operating activities was $527 million for the first half of 2011, up $122 million from the same period last year. Higher earnings, the collection from customers of higher amortization costs, and favourable changes in working capital and regulatory deferral accounts were all major contributors to the improved showing. The company had $298 million in cash at the end of the second quarter compared to $71 million last year.
Risks: Earlier this year, the government of Belize nationalized Fortis's power generating and distribution assets in the country, so far with no indication of any intent to offer compensation. The company had a 70% ownership position in Belize Electricity Ltd. which it had acquired at the invitation of a previous government in 1999. Fortis's entire stake in Belize only represents about 3% of corporate assets but if no compensation is paid the full amount will have to be written off at some point.
Fortis also has interests in the Cayman Islands and the Turks and Caicos Islands which could theoretically be vulnerable to similar treatment by local governments however there has been no indication of anything like that being contemplated.
Other risks include labour problems, economic slowdown, unplanned shutdowns of generating facilities, and higher interest rates (like all utilities, Fortis carries a high debt load).
Also, much of the company's business is subject to regulation so the ability to raise rates is severely constrained.
Distribution policy: The shares pay a quarterly dividend of $0.29 ($1.16 a year). Dividends are paid on the first day of March, June, September, and December.
Tax implications: Dividends paid to Canadian non-registered accounts are eligible for the enhanced dividend tax credit. U.S. investors will have a 15% withholding tax deducted, which can be reclaimed through the foreign tax credit.
Who it's for: This stock is suitable for conservative investors who want to add a low-risk security that offers a combination of good cash flow and modest long-term growth potential.
Action now: Buy. The shares closed on Friday in Toronto at $32.93. The OTC price was US$30.82
Fortis Inc. (TSX, FTS, OTC: FRTSF)
The business: The two products you can't live without, especially in our climate, are electricity and natural gas. Those are the two main businesses of Fortis, a company based in St. John's, Newfoundland that operates across Canada as well as in New York State and the Caribbean.
Fortis is the largest investor-owned distribution utility in Canada, serving more than two million gas and electricity customers. Its regulated holdings include electric utilities in five Canadian provinces and two Caribbean countries. Several years ago it acquired Teresen, a natural gas utility in British Columbia which has proved to be highly profitable. As well, Fortis has interests in hotels and commercial real estate. Subsidiary companies include FortisAlberta, FortisBC, Newfoundland Power, Fortis Generation, Maritime Electric, Caribbean Utilities (59% owned), Fortis TCI, FortisOntario, and Fortis Properties.
Fortis has total assets of approximately $13 billion. Total revenue for the 2010 fiscal year was approximately $3.7 billion. The company has about 5,000 employees.
The security: We recommend the common shares of Fortis which trade on the Toronto Stock Exchange under the symbol FTS. They are also listed on the over-the-counter Pink Sheets in the U.S. under the symbol FRTSF.
Why we like it: For starters, this is a highly defensive stock. That doesn't mean it won't lose some value in a broad market retreat but it will do much better than most. The nature of the business is such that revenues will hold up in a downturn, although growth will slow.
Second, this is a great income stock. The shares currently yield 3.5%. And you can expect that payout to keep rising. Fortis has increased its dividend for 39 consecutive years, the longest streak of any Canadian company.
Financial highlights: Fortis reported second quarter net earnings attributable to shareholders of $58 million ($0.33 per share), compared to $55 million ($0.32 per share, for the second quarter of 2010. Net earnings attributable to shareholders for the first half of 2011 were $175 million ($1 per share), up $20 million from earnings of $155 million ($0.90 per share), for the first half of last year.
Cash flow from operating activities was $527 million for the first half of 2011, up $122 million from the same period last year. Higher earnings, the collection from customers of higher amortization costs, and favourable changes in working capital and regulatory deferral accounts were all major contributors to the improved showing. The company had $298 million in cash at the end of the second quarter compared to $71 million last year.
Risks: Earlier this year, the government of Belize nationalized Fortis's power generating and distribution assets in the country, so far with no indication of any intent to offer compensation. The company had a 70% ownership position in Belize Electricity Ltd. which it had acquired at the invitation of a previous government in 1999. Fortis's entire stake in Belize only represents about 3% of corporate assets but if no compensation is paid the full amount will have to be written off at some point.
Fortis also has interests in the Cayman Islands and the Turks and Caicos Islands which could theoretically be vulnerable to similar treatment by local governments however there has been no indication of anything like that being contemplated.
Other risks include labour problems, economic slowdown, unplanned shutdowns of generating facilities, and higher interest rates (like all utilities, Fortis carries a high debt load).
Also, much of the company's business is subject to regulation so the ability to raise rates is severely constrained.
Distribution policy: The shares pay a quarterly dividend of $0.29 ($1.16 a year). Dividends are paid on the first day of March, June, September, and December.
Tax implications: Dividends paid to Canadian non-registered accounts are eligible for the enhanced dividend tax credit. U.S. investors will have a 15% withholding tax deducted, which can be reclaimed through the foreign tax credit.
Who it's for: This stock is suitable for conservative investors who want to add a low-risk security that offers a combination of good cash flow and modest long-term growth potential.
Action now: Buy. The shares closed on Friday in Toronto at $32.93. The OTC price was US$30.82
