Sunday, May 10, 2020

Stock Analysis: Fortis Inc.

As investors in individual stocks, one of the goals should be to reduce risk of losing money.  This can be done by choosing stocks that are known as blue chips.  Blue chips cost more but tend to hold their value.

Another way to reduce risk is to do a valuation of a stock.  Valuation is not an exact science but an investor can do an analysis on what the stock is worth.  

This number on what price the stock is worth compared to the actually price of the stock will indicate if the stock is undervalued or overvalued.

Ultimately, you want to purchase a stock far below the price determined by doing a valuation analysis. The lower the purchase price the better.  The lower the purchase the greater the starting yield, which means your money will be working harder for you.  

Fortis is a leading utility in North America that is headquartered in St. John's, Newfoundland and Labrador. Fortis Inc. started in 1885 under the St. John's Electric Light Company in what would become the province of Newfoundland.  The St. John's Electric Light Company eventually came the Newfoundland Light and Power Co. Ltd.  The latter eventually became the first subsiduary of Fortis Inc in 1987.  

Fortis is a holding company that operates under various subsidiaries in the utility space.

Fortis has over 9000 employees and serve their customers in Canada (5 provinces) , 9 American states and 3 countries in the Caribbean.  Fortis has $53 billion in total assets at the end of 2019.  The customer base consists of 1.3 million gas utility customers and 2 million electric utility customers.

Now, we will look at the fundamentals of the stock.  Fortis Inc. trades on the Toronto Stock Exchange and New York Stock exchange as FTS.

As I am in Canada, I will use the Toronto Stock Exchange FTS quote in my analysis.

Currently, Fortis is trading at $53.25 at the close of May 8, 2020.  Fortis pays an annual dividend of $1.91 per share, or $0.4775 per share. The stock is currently yielding 3.59%. This yield is 10 bps below the stock's own 5 year average and 30 bps below that of the broader market. 

The EPS per the trailing twelve months (TTM) is $3.73.  The dividend payout ratio is 51.2%.  This is a great dividend payout ratio showing half of the earnings are going to investors while the other half as retained earnings. 

At the end of fiscal year 2019, 99% of earnings came from regulated utilities. 

The 5yr dividend growth rate is 7.4%.  The 10yr dividend growth rate is 5.8%.

Fortis has raised their dividend for 46 consecutive years.  This is the second highest streak in Canada.  

People use utilities to live their everyday lives.  So, in good and bad times the company makes money.  In the current COVID19 pandemic, earnings could take a hit from the industrial and commercial side of the business as a lot of places are shut down.  The earnings from residential customers will increase as people are home more and therefore using their utilities more than normal.

Now, we will take a lot at the some fundamentals over the last 10 years.  Although third party information, like Morningstar, is quite accurate, it is best to get the information from annual reports from Fortis directly.  The fiscal year for Fortis ends December 31, which is same as regular calendar year.

Fortis grew revenues from $3.664 billion in 2010 to $8.783 billion in 2019.  This is a compound annual growth rate (CAGR) of  10.33%.

This CAGR is fantastic. During this time, the price of oil has been varied from near a $100 per barrel to $30 a barrel.  The lower the price of oil means higher earnings due to lower cost.

We next take a look at diluted EPS over the last 10 years.  Fortis grew diluted EPS from $1.62 per share in 2010 to $3.78 per share in $3.78 per share. This is a CAGR of 9.87%.  

A CAGR near 10% for EPS was helped by 3 major acquisitions.  

The number of shares outstanding has increased by 134% over the last 10 years.  During the last 10 years Fortis had 3 major acquisitions to grow their assets.  

I expect the EPS to continue to grow over the long term, but be reduced in the short term.  The EPS will likely decline in the short term as most of their industrial or commercial customers have been shut down to help reduce the spread of COVID19.  Although their residential customers have been increasing their use of utilities during the COVID19 pandemic, the increase in revenues will not come anywhere close to replacing the losses via by their industrial and commercial customers.  The economy is starting to open up, but is will be a slow recovery as things will have to be done differently by individuals and businesses. 

The long term debt to equity ratio comes in at 1.16.  The interest coverage ratio is 3.06.

The higher the interest coverage ratio the better.  The interest coverage ratio is a measure of the ability of a company to pays the interest on its debt.  Ideally, I would look for an interest coverage ratio of minimum 5.  I am not too concerned with Fortis ability to pay its debt due to earnings will be helped by the low price of oil and costs being reduced via increase of renewable energy.

Fortis has an average annual net margin of 12.59% over the last 5 years.  Net margin is basically what percentage of revenue hits the bottom line after every expense is accounted for.  The net margin fell a bit in 2016 but increased in the next 3 fiscal years. 

Fortis has an average return of equity of 8.16% over the last 5 years. 

Investing in Fortis has served investors well over the last 10 years.  As utilities allowed people to live their lives and to run the industries and businesses in various aspects of the economy, the company is highly recession proof. 

We do not want to over pay for a stock. Ultimately, we want to purchase a stock for less than we think it is worth.  By doing this, we have a large margin of safety.  The lower you purchase a stock, the higher the starting yield which means your money is working harder for you right from the start.  


The stock is currently trading at P/E of 14.35.  This is well below the stock's 5 year average of 19.7 and slightly above that of the broader market (TSX Composite Index) of 12.2. 

The stock is basically on par in terms of price to book and price to sales when compared to the stock's 5 year average.

The stock is currently trading at P/CF (Price to cash flow) of 8.8.  This is on par with the stock's own 3 year average of 7.6.  The current P/CF is also on par with that of the broader market of 7.9.

With these numbers that stock does not look appealing at $53.25.

I will attempt to value the stock using a dividend discount model analysis. I am going to use a discount rate of 9%.  I choose 9% as this represents what I am for in terms of annual return with a stock with a current yield of 3.6%.  I am going to use a dividend growth rate of 5.5% growth rate. This is slightly lower than the aim of Fortis to grow their dividend annually at 6% to 2024.  

The Dividend Discount Model Analysis gives me a fair value of $57.57

I want to compare this to a 3rd party to see if my analysis is reasonable.

Morningstar currently rates Fortis as a 3 star stock.  This would mean the stock is equally valued.

Morningstar has a fair value of $54.76.

I take the average of these 2 numbers to get a fair value of $56.16.


The stock could be possibly be 5.2% undervalued.

I would not be a buyer currently as I believe the margin of safety is too low.  Valuing a stock is not an exact science.  

Disclosure:  I do not own FTS.TO in any of my accounts.  

Photo credit


I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Sunday, May 3, 2020

Dividend Income Update: April 2020

The month of April 2020 is another month of dividend income landing in my accounts. Recently, I switched my pay yourself first model to concentrate a little on debt repayment.  The interest on debt is 7.16% 5.66% plus the insurance on the debt.  The decrease in the interest rate is a result of emergency rate cutes by the Bank of Canada over the COVID19 pandemic.   I currently pay myself 10% of income from job(s) and non-registered accounts to my TFSA.  The TFSA income is staying within the account.  I will deviate the 10% to savings account instead of to TFSA if a large expense comes up like a dental appointment. 

Note:  All the dividends and totals below are in Canadian Dollars. 
 Non-registered Accounts

  • Bank of Nova Scotia (BNS) - $18.00
  • Bank of Nova Scotia (BNS) - $41.58 (Transfer Agent)
  • Bell Canada Enterprises (BCE) - $83.25
  • Canadian Imperial Bank Of Commerce "C.I.B.C"  (CM) - $160.60
  • Enerplus (ERF)  -$ 7.30
  • Restaurant Brands International (QSR) - $72.55
  • Rogers Communications  Class B (RCI.B) - $100.00
  • Shaw Communications (SJR.B)  - $19.75
Subtotal : $503.03

  • Cominar REIT (CUF.UN) - $13.38
  • Killam Properties REIT (KMP.UN) - $17.11
  • TD Bank (TD) - $48.98
  • Telus Corporation (T) - $13.98
  • TFI International (TFII) - $13.00
Subtotal: $106.45

Total = $609.48

 I received a total of $609.48 in dividend income for the month of April 2020.  This represents a 1.689% decrease from 3 months ago and 11.14% increase year over year.  

 The decrease from 3 months ago is less than 2%.  Three monthly payers suspended their dividends and this was offset by a bigger dividend from Enerplus, TD Bank and Restaurant Brands International.  

Boston Pizza Royalties Income Fund (BPF.UN) and A&W Royalties Income Fund (AW.UN) suspended their distributions due to uncertainty over COVID19.  A&W had to close their doors to inside sitting and basically do only drive thru or use 3rd party companies for deliveries.  Some of their restaurants had to close as they were located inside a mall in a food court setup.  At Boston Pizza, you could walk in to get your order as they do not have drive thru at their locations. 

The third monthly payer to stop their dividend was Cineplex (CGX).  Cineplex announced they will stop their dividend after the payment in February.  At that time, it was to make sure it kept their earnings to keep their debt down to satisfy their debt obligations in their friendly take over by UK-based Cineworld.  But the world had something else in store.  Cineplex had to close their theatres and all other entertainment venues due to COVID19.  As of today's date all these remained closed as restrictions are still in place that limit large gatherings under 50 people, with most provinces less than 30 people.  

 I received dividend / distribution income from 12 different companies.   

  I received $0.00 in option premiums within my investment accounts in April 2020.

Below is a visual of my dividend totals for the last 5 years.  

I will update my dividend income tab with the new amount.  I will include my option premium income also.  It is great to see money from passive income sources deposited into my brokerage account every single month.

How was your dividend income for April 2020?

Disclosure : Long all mentioned securities

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Friday, May 1, 2020

Portfolio Update : April 2020

The month of April 2020 now behind us. Some major things have happened in the world, which affect the markets in some way.

The price of WTI barrel of crude oil fell to around to levels I never heard in my time on this planet. The price per barrel fell to around - $40 per barrel. That is negative $40. Likewise, Western Canada Select fell into negative territory as well. The economies across the world has been nearly shut down due to COVID19. As countries or individual provinces/states has started to relax restrictions and allow some businesses to start opening, it is a small fraction of the recent past.

A lot of individuals who were laid off due to COVID19, had their hours reduced or have to work at home. This means they have less money to spend and might be tightening their belts as we do not know what is in store over fears of the spreading of the virus.

Portfolio Activity

Margin Account Activity

There has been no buys or sells in this account.

The purchase of Cineplex (CGX.TO) by Cineworld has not been finalized as of this date. The deal is in danger of not go through due to the shut down of all Cineplex entertainment venues over COVID19. Cineworld has a similar shut down.

TFSA Activity

There has been no buys or sells in this account. I have not taken any money out of this account in several months.

Shares Purchased Via DRIP

1 unit of CUF.UN @ $8.61672 for a total cost of $8.62 (TFSA)
2 shares of ERF.TO @ $2.5035 for a total cost of $5.01 (Margin Account)

Cominar REIT pays a monthly distribution of $0.06 per unit per month, or $0.72 per unit annually. This DRIP adds $0.72 to my annual dividend income. The yield on cost for the DRIP unit is 8.35%.

Enerplus pays a monthly dividend of $0.01 per share monthly, or $0.12 per share annually. This drip adds $0.24 to my annual dividend income. The yield on cost for this DRIP is 4.79%.

Enbridge, has suspended their DRIP program over a year ago. So, I receive a check in the mail for my Enbridge shares held directly with the transfer agent. If the DRIP program is re-instated, then my shares will DRIP automatically without any action on my part.

I have some other positions with the DRIP turned on, but might not have enough of a dividend to purchase a whole share. Boston Pizza Royalties Income Fund (BPF.UN) have suspended their dividend due to restrictions put in the place due to COVID19.

Please note that if some brokerages DRIP shares when there is no DRIP program by the actual company. This DRIP is when the brokerage buys the shares directly off the public market stock exchanges.

Dividend Increases

There has been no dividend increases in April 2020.

Dividend Decreases

There has been no dividend decreases in April 2020.


As of May 1, 2020 , the total value of the portfolio is $103863.46. This is a 8.83% increase over last month's total.

The portfolio is estimated to produce an estimated $5148.72 in dividend income over the next 12 months. This is an increase of $2.82 CAD , or 0.055%. Some of the dividends in the Canadian stocks section are paid in US dollars, which are converted to Canadian dollars.

Please Note: Positions in Restaurant Brands International (QSR.TO) and Intertape Polymer Group (ITP.TO) pay dividends in US dollars. Brookfield Renewables Partners (BEP.UN) pays distributions in US dollars. My investment tab spreadsheet displays the Canadian dollar equivalent within 15 to 20 minutes of real time.

We have to believe this pandemic will end and we will get through this. Everyone must do their part, although it is hard when businesses are told to close their doors.

Did the pandemic change how you will live going forward regarding finances?

Disclosure: Long aforementioned stocks

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice. Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.