On July 30, the Bank of Canada held its benchmark interest at 2.75% for the third consecutive time. However, economists are predicting two interest rate letings this year, which can reduce the accommodation interest rate to 2.25% towards the end of the year. In this environment with a low interest rate, investors can look at quality dividend shares to earn a stable passive income. Therefore, let’s investigate whether Fortis (TSX: FTS), which operates 10 assets for electric and natural gas utilities in the United States, Canada and the Caribbean, would be an ideal purchase for its dividends.
Fortis’ Track Record of Dividend Payments
Fortis has a highly regulated utility company, with 99% of its assets that fall under legal supervision and 93% involved in transmission and distribution companies with a low risk. That is why the financial data and cash flows are less susceptible to economic cycles and broader market conditions. Furthermore, the growing interest rate base of the company, improving operational efficiency and favorable customer rates have revisions have increased financial growth, so that it can consistently increase its dividend. The utility company has increased its dividends for 51 years uninterrupted and currently pays an annual payout of $ 2.46/share, which translates into a Forward dividend yield of 3.5%.
Fortis’ impressive performance of the second quarter
Fortis achieved an impressive performance of the second quarter on 1 August, with its net income at $ 384 million, which represents an increase of 16% compared to the quarter of the previous year. In the meantime, his profit per share (profit per share) of $ 0.76 represents an increase of 13.4% compared to $ 0.67 in the quarter of last year. The speed basis growth and favorable currency translation increased income. However, the unfavorable impact of the timing of operating costs, the expiry of legal stimuli and the lower permitted roe (return on common equity) compensates for part of its growth.
Fortis’ Growth Objections
The demand for electricity increases in the middle of population growth, rising income levels, the electrification of specific sectors and the expansion of data centers to support an increased use of artificial intelligence (AI). The rising energy demand could go for Fortis that this year has made capital investments of $ 2.9 billion and is on its way to complete its intended capital investments of $ 5.2 billion.
Furthermore, the company’s subsidiary, Tucson Electric Power (TEP), agreed to meet the energy requirements of a data center in its service area, which could become operational in 2027, with extension planned until 2029. According to the agreement, TEP must initially flow and 600 MegaWatt. Furthermore, the data center operator has indicated a further requirement of 500-700 megawatts for his second site.
Fortis is planning to make a capital investment of $ 26 billion in the coming five years to meet the growing energy demand. These investments can grow its rate base by the end of 2029 with an annual rate of 6.5% to $ 53 billion. These growth initiatives can continue to support financial growth in the coming years, so that it can maintain its dividend growth. In the meantime, the management of the company expects to increase its dividend by 4-6% until 2029.
Bottom Line
Supported by its solid quarterly performance and falling interest rates, Fortis has delivered AN8.8% return this year, which performs better than the wider stock markets. Despite the healthy return, the company is traded at a reasonable NTM (the next 12 months) price-to-sales multiple of 2.7. Given the reliable cash flows, healthy growth prospects and a consistent dividend growth, I believe that Fortis would be ideal for income -seeking investors despite the moderate proceeds.
#Fortis #good #dividend #stock #buy