Stock Analysis

Fortis (TSE:FTS) Will Pay A Larger Dividend Than Last Year At CA$0.565

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The board of Fortis Inc. (TSE:FTS) has announced that the dividend on 1st of December will be increased to CA$0.565, which will be 5.6% higher than last year's payment of CA$0.535 which covered the same period. The payment will take the dividend yield to 4.1%, which is in line with the average for the industry.

See our latest analysis for Fortis

Fortis' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Fortis' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to rise by 21.5% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 72% which brings it into quite a comfortable range.

TSX:FTS Historic Dividend October 2nd 2022

Fortis Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the annual payment back then was CA$1.20, compared to the most recent full-year payment of CA$2.14. This means that it has been growing its distributions at 6.0% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Fortis May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Fortis has only grown its earnings per share at 2.5% per annum over the past five years. Slow growth and a high payout ratio could mean that Fortis has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Fortis' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Fortis you should be aware of, and 1 of them is significant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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Fortis Inc. operates as an electric and gas utility company in Canada, the United States, and the Caribbean countries.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Future Growth2
Past Performance3
Financial Health1

Read more about these checks in the individual report sections or in our analysis model.

Average dividend payer with acceptable track record.