Generally speaking, investors tend to purchase Fortis Inc. (NYSE:$FTS) as it has a promising track record of dividend growth. As a result, investors tend to purchase Fortis as a buy-and-forget investment. With that being said, just because it’s a stable business doesn’t mean that you should purchase it at just any price. If you want to start alternative energy investing, keep the following in mind.
Fortis is a safe dividend-growth stock
Fortis Inc has raised its dividend per share for 43 consecutive years, thus making it one of the top two dividend-growth stocks in Canada. This is extremely significant when you compare that to the third top dividend-growth stock in Canada which only increased its payout for 25 years.
Many investors agree it’s a stable business
Composed of 10 utility operations in Canada, the United States, and the Caribbean, Fortis is a North American electric and gas utility leader that produces stable returns.
Currently, Fortis has predicted that the company will produce 55% of its operating profits from the United States, which included 26% from electric and gas utilities. The large exposure in the United States is considered to be positive as the U.S dollar is usually stronger than the Canadian dollar, even more so when oil prices are weak.
According to Fortis’s annual payout of $1.60 per share, the company has predicted its payout to be roughly 63% in 2017.
Furthermore, the management team at Fortis Inc plans to increase its dividend per share by nearly 6% per year through the year 2021. In fact, with a viable payout ratio, Fortis is in position to grow its dividend even further.
When is the right time to buy Fortis?
With the price set at $45.50 per share, Fortis trades at a forward multiple of 18. Now, that’s not necessarily expensive, but it’s also not the best deal out there.
If you want to invest in Fortis, only do so when it yields 4%. As of right now, Fortis yields 3.5%. Regardless of whether you account for the predicted 6% dividend hike which will be announced towards the end of September, to get a yield of 4% from Forti, investors should expect to pay a maximum price of $42.40 per share. This suggests a 7% dip from where it is at right now, which is not completely out of reach.
What’s the takeaway?
As mentioned, Fortis is a stable business which offers a safe and growing dividend. That said, investors need to be careful about the value that they pay because Fortis grows at a tame rate.
Keep in mind if you want to purchase Fortis as a buy-and-forget stock that over the course of the next 12 months, investors should not be paying more than $42.40 per share for Fortis.
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