FORTIS INC. $55(Toronto symbol FTS; Income-Growth Portfolio, Utilities sector; Shares outstanding: 430.9 million; Market cap: $23.7 billion; Dividend yield 3.3%; Dividend Sustainability Rating: Highest; www.fortisinc.com)owns electrical utilities across Canada, the U.S. and the Caribbean. In addition, the company distributes natural gas in British Columbia, Arizona and New York State.
With the December 2018 payment, the utility increased its quarterly dividend by 5.9%, to $0.45 a share from $0.425. The annual rate of $1.80 yields 3.3%. The company intends to raise that annual payment by about 6% each year through 2023.
On April 16, 2019, Fortis completed the sale of its 51% interest in the Waneta Expansion Hydroelectric Project for $1 billion. It recorded a $484 million gain on the sale.
In the three months ended June 30, 2019, revenue rose 1.2%, to $1.97 billion from $1.95 billion a year earlier. The increase was due to revenue gains at the company’s ITC power transmission operations in eight U.S. states.
Fortis acquired ITC Holdings Corp. for $11.8 billion U.S., including debt, in October 2016. It then sold a portion of ITC to Singapore’s sovereign wealth fund for $1.2 billion U.S.
Excluding one-time items, earnings in the quarter fell 6.4%, to $235.0 million, or $0.54 a share. A year earlier it earned $251.0 million, or $0.59. That decline was due to unseasonable weather at its Arizona and Belize operations.
The company will probably earn $2.57 a share for all of 2019, and the stock trades at a reasonable 21.4 times that forecast.
Fortis is a buy.
ALGONQUIN POWER & UTILITIES CORP. $17(Toronto symbol AQN; High-Growth Dividend Payer Portfolio, Utilities sector; Shares outstanding: 497.7 million; Market cap: $8.5 billion; Dividend yield: 4.4%; Dividend Sustainability Rating: Above Average; www.algonquinpower.com)operates through two main businesses: The Liberty Power Group produces and sells electricity from 39 clean energy facilities across North America; and the Liberty Utilities Group provides regulated electricity, natural gas, water distribution and wastewater collection services.
The company last increased its quarterly dividend with the July 2019 payment. Investors now receive $0.1410 U.S. a share, up 10.0% from $0.1282 U.S. The new annual rate of $0.5640 U.S. yields a high 4.4%.
Algonquin tends to fuel its growth with acquisitions, which adds risk. However, the company cuts that risk by buying profitable utilities. Algonquin also sells its power under long-term government-guaranteed contracts.
In 2018, the company acquired 41.5% of U.K.-based Atlantica Yield for $953 million (all amounts except share price and market cap in U.S. dollars). It now owns 44.2% of Atlantica, which operates renewable power plants, natural gas plants, electric transmission lines and two water desalination plants in Europe, South and North America, and Africa.
In June 2019, Algonquin acquired the Bermuda Electric Light Co. for $365 million. That firm provides power to approximately 63,000 residents and businesses on the small island.
In the three months ended June 30, 2019, overall revenue fell 6.1%, to $343.6 million from $366.1 million a year earlier. That decline is mainly due to lower demand for power at its Liberty Utilities division in the U.S. However, due to the contribution of its new businesses, Algonquin’s earnings before one-time items rose 8.1%, to $55.0 million from $50.9 million. Earnings per share were unchanged at $0.11 on more shares outstanding.
The stock trades at 21.0 times the $0.61 U.S. a share that Algonquin should earn in 2019.
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