CPP Pensioners need to be risk-averse and invest in stocks that have strong fundamentals. We know that the average CPP payment in 2019 was around $600 per month, while the maximum payment was just north of $1,000. The rising cost of living in Canada’s major provinces indicates you need a lot more than the average monthly CPP payment.
This means an ideal stock for pensioners will mean a dividend-paying company with a huge market presence and an optimal capital ratio. CPP pensioners need to bank on income-generating stocks with the potential of capital appreciation rather than growth stocks with a high beta and are comparatively risky.
One such stock that’s appealing to risk-averse investors is Canada’s domestic utility giant Fortis Inc. (TSX:FTS)(NYSE:FTS). Fortis is an electric and gas utility holding company. The stock is valued at $25.46 billion in terms of market cap, while its enterprise value stands at $51 billion.
In the last 12 months, the stock has gained an impressive 21.3%. Incorporated in 1987, Fortis has grown its assets from $390 million to $53 billion in 2019 and now has a customer base of over three million.
Fortis is a market leader in the regulated gas and electric utility industry, serving customers across the United States, Canada, and the Caribbean.
Stellar increase in shareholder returns
Fortis Inc. is a Dividend Aristocrat. It pays an annual dividend of $1.91 per share indicating a forward dividend yield of 3.5%. Fortis has increased dividend payments for the last 46 years. The company aims to increase dividends by an annual rate of 6% until 2024.
With a payout ratio of under 50%, Fortis has enough room to increase dividends. While its high debt balance of $24 billion might concern investors, with operating cash flows of $2.57 billion, it has sufficient capacity to repay interest and debt.
Over the last 20 years. Fortis stock has increased by 1,363% (as of December 31, 2019). Comparatively, the S&P/TSX Composite Index has gained 237%, while the S&P/TSX Capped Utilities Index is up 729% in this period.
Fortis is focusing on leveraging its operating model and business footprint to execute growth opportunities. It has a diversified energy delivery business with annual sales estimated at $8.87 billion, a growth of 5.8% year over year. Analysts expect this growth to accelerate to 5.9% to $9.39 billion in 2020.
Investing in clean energy
Fortis claims that 93% of company assets relate to electricity poles, wires and natural gas lines that enable a cleaner energy future. It is now increasing investments in the clean energy segment.
Fortis has increased conservation & efficiency programs to $370 million. It currently operates five RNG (renewable natural gas) facilities and has received regulatory approval to produce RNG at Vancouver Landfill, FortisBC’s largest RNG project to date.
FortisBC owns and operates 19 charging stations and five compressed natural gas stations. Fortis expects to spend $18.3 billion in capital expenditure between 2020 and 2024 with the shift to clean energy driving incremental investments of at least $1 billion in the forecast period.
Fortis’ expanding profit margins (EBITDA is estimated to reach $4.5 billion in 2021, up from $3.6 billion in 2018), growing dividend payments and strong fundamentals make it a reliable bet for CPP pension investors.
