FORTIS INC. $27 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 156.6 million; Market cap: $4.2 billion; SI Rating: Above average) distributes electricity to over 2 million customers in Newfoundland, Prince Edward Island, Ontario, Alberta and British Columbia. The company also owns power utilities in the United States and the Caribbean, plus hotels and commercial real estate, mainly in Atlantic Canada.
Fortis prefers to operate regulated utilities, which account for 90% of its assets. That limits its growth, but gives it steady income.
The company owns several generating stations, but buys much of its power from other producers under long-term agreements at regulated rates. These contracts help shield Fortis from rising fuel costs at these suppliers.
Fortis’s earnings in the first quarter of 2008 jumped to $92 million from $43 million a year earlier.
Most of the rise is due to last year’s acquisition of Terasen Inc., which distributes natural gas in British Columbia. Terasen contributed $58 million to the latest quarterly earnings.
Fortis issued new shares to pay for Terasen. Due to the extra shares outstanding, per-share earnings in the quarter rose 57.1%, to $0.55 from $0.35. Revenue grew to $1.1 billion from $483 million.
The stock now trades at 17.4 times the $1.55 a share that Fortis will probably earn in 2008. The company has also increased its dividend for 35 consecutive years. Last December, Fortis increased the quarterly rate by 19.0%, from $0.21 a share to $0.25. The current annual rate of $1.00 yields 3.7%.
Fortis is a buy.
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