Yahoo Finance Fortis' (TSE:FTS) Dividend Will Be Increased To CA$0.565
Fortis Inc. (TSE:FTS) will increase its dividend from last year's comparable payment on the 1st of December to CA$0.565. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.
View our latest analysis for Fortis
Fortis' Payment Has Solid Earnings Coverage
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 21.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.
Fortis Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CA$1.20 in 2012 to the most recent total annual payment of CA$2.26. This means that it has been growing its distributions at 6.5% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, Fortis' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Fortis' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Fortis will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Fortis has 2 warning signs (and 1 which is significant) we think you should know about. Is Fortis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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