Fortis (TSX:FTS) stock is a staple of many Canadian dividend investors’ portfolios. The stock has a 4% dividend yield, and the dividend has grown over time. Management aims for 6% dividend increases each year going forward, so the yield on cost could grow higher still. If Fortis achieves just one more year of dividend increases, it will become a Dividend King — a stock that has raised its dividend every year for 50 consecutive years.
A lot of investors like Fortis because of its dividend, but there’s much more to the stock than just a high yield. The company famously grew its earnings in 2008, when corporate earnings in general were suffering from the Great Financial Crisis. It also grew its earnings last year, when many utilities were suffering under the weight of rising interest rates. Clearly, Fortis is a company that can thrive in both bull and bear markets. The question is, why?
Overall advantages of utilities stocks
One set of advantages that Fortis enjoys is the advantages that all utilities enjoy. Utilities are generally regulated by the government, creating high barriers to entry, and are indispensable services, so people don’t cut down on consumption, even in recessions. The effect of these advantages is a very high level of revenue stability for utility stocks. Put simply, they are very non-cyclical. That’s a powerful advantage for utilities over the long run, but Fortis has outperformed the TSX utilities sub-index — an index consisting of only utilities. So, there’s more to this story than just being a utility.
Extra advantages Fortis enjoys
In addition to being a utility, Fortis has a number of advantages above and beyond those enjoyed by all utilities. Some of these advantages include the following:
- 98% regulated utilities: Not all utilities are regulated, but 98% of those that Fortis owns are.
- International diversification: Fortis owns assets in Latin America and the U.S. in addition to Canada. This globally diversified revenue mix gives Fortis the ability to thrive in different economic climates.
- An emphasis on growth: Fortis is not just a local utility company that owns one power plant. It is constantly looking for ways to grow and expand. Over its history, it has acquired valuable assets in many big markets. It’s currently working on a multi-billion-dollar expansion plan that will, among other things, increase service to remote communities.
As we can see, Fortis has many advantages. Those advantages are apparent in the company’s results. In 2022, Fortis delivered the following:
- $1.3 billion in net income.
- $2.78 in earnings per share, up 7%.
- A 7% increase in the base rate, achieved partially by capital expenditures that are paying off.
- A $398 million increase in property, plant, and equipment.
In a year that saw Algonquin Power & Utilities deliver negative third-quarter growth, and other utility companies struggle under the weight of rising interest rates, Fortis delivered positive earnings growth! It was a pretty good showing, and it goes to show that Fortis’s advantages as a company go far beyond those it earns just by being a utility.
