Fortis' (TSE:FTS) Upcoming Dividend Will Be Larger Than Last Year's

Fortis Inc. (TSE:FTS) will increase its dividend from last year's comparable payment on the 1st of December to CA$0.59. Based on this payment, the dividend yield for the company will be 4.3%, which is fairly typical for the industry.

See our latest analysis for Fortis

Fortis' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 13.7% over the next year. If the dividend continues on this path, the payout ratio could be 70% by next year, which we think can be pretty sustainable going forward.

Fortis Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$1.24 in 2013, and the most recent fiscal year payment was CA$2.36. This means that it has been growing its distributions at 6.6% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See Fortis' Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Fortis has impressed us by growing EPS at 5.9% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Fortis' Dividend

Overall, we always like to see the dividend being raised, but we don't think Fortis will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Fortis (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.