Fortis (FTS) has roots stretching back to 1885 as a tiny electric utility formed in what is now the Canadian province Newfoundland, suggests Richard Moroney, editor of Dow Theory Forecasts.

Taking the name Fortis in 1987, the company pushed into the Caribbean in 2006 and made three multi-billion-dollar acquisitions between 2012 and 2016 to expand its U.S. presence.

Today, Fortis is a geographically diverse regulated utility that serves 3.3 million utility customers across nine U.S. states, five Canadian provinces, and three Caribbean countries.

Fortis relies on the U.S. for about 56% of revenue, followed by Canada (41%), and the Caribbean (4%). The company generates 78% of sales from electric utilities, 21% from natural-gas utilities, and 1% from a natural-gas storage facility in British Columbia.

The utility’s capital investments focus on transitioning to cleaner energy sources. Fortis plans to invest $19.6 billion in capital expenditures over five years to increase its rate base to $40.3 billion by 2025, implying annual compound growth of 6%.

Management expects to fund that investment primarily from operating cash flow and debt issuance, with a smaller portion coming from contributions to the company’s dividend reinvestment plan (DRIP).

The rate base represents a utility’s net asset base used to provide regulated electric, natural-gas, and water services. Regulators use this crucial metric to calculate a utility’s rate of return on regulated services, so a higher rate base hints at a utility’s potential for growing profits.

For the 12 months ended March, Fortis grew earnings per share 7% and sales 4%. For 2021, Fortis is expected to increase both per-share profits and revenue 7%.

Fortis yields 3.7%, above the average of 3.3% for S&P 1500 utilities. The stock’s lofty payout ratio — 76% of earnings devoted to the dividend versus its sector average of 61% — bears monitoring.

But Fortis has raised its dividend in each of the past 47 years. And management aims to increase the dividend 6% annually through 2025, matching its growth rate over the past five years.

The shares have returned 16% including dividends over the past three months. At 22 times trailing earnings, the stock trades above the median S&P 1500 Index utility stock, a premium warranted by its growth potential.

Fortis stands out among peers in Quadrix®, with both sector-specific scores exceeding 75. The stock also looks timely, earning above-average ranks for Momentum, Value, Earnings Estimates, and Performance — the same can be said of just two of the 50 utilities in the S&P 1500 Index.

Admittedly, we rarely recommend utilities on our buy lists. But Fortis offers solid operating momentum, reliable dividend growth, and a decent valuation.

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