Fortis Inc. (FTS.TO)

If rates go up, typically utilities underperform. However, if rates are going up because of inflationary pressures, regulators typically raise the rate of return on the underlying assets. They have a big acquisition in the US which left them in good stead. They’ve done a good job in growing dividends and this is a good kind of core holding.

(Top Pick Mar 3/16, Up 19%) They made a nice acquisition. He has nothing against the company. He cannot recommend a sell and would be happy to hold it.

It pays a nice dividend. It is one of two growth utilities in Canada. They have diversified themselves into the US and also in the kind of utility they own. They raise their dividends on a regular basis. When interest rates start to go up meaningfully, it won’t participate in the same way. It should be a part of everyone’s portfolio – either this or EMA-T.

(A Top Pick June 2/16. Up 11%.) Recently did a huge acquisition in the US. He admires their diversification across many regulatory factions. They are now well positioned in the US.

This is a good time to Buy. Fortis, Emera (EMA-T), TransCanada (TRP-T) and Enbridge (ENB-T) have all made major forays into the US. This one made an acquisition of a regulated utility, which is going to give them some good growth opportunities. Looking forward, he can see further increases in activity in the US, and longer-term a dividend growth of around 6%.

Which utility stock has the best dividend growth profile? He would suggest you look at this one, which recently made a big acquisition in the US. They are paying about 3.6% now, and are committed to growing the dividend at about 5%-6% per year. Earnings are projected to grow at a similar rate. Trading at a reasonable valuation.

Closed on ITC Corp last year, a US electric utility. That increases their exposure in the US. She likes this utility, because it is noncyclical and non-commodity-based. Pretty defensive. 90% of cash flow comes from regulated assets. They’ve increased the dividend for 43 consecutive years, and she doesn’t see that changing. She can see it growing 6% annually through 2021. That is important for income stocks in a potential rising rate environment. Has a price target of about 10% upside plus the dividend, giving a total return of about 13%. Dividend yield of 3.6%. (Analysts’ price target is $48.)

It has been one of the better performs. You have a wide range of assets geographically. They have been making US acquisitions. You have done almost 10% compound total return over the last 5 years. In terms of risks, you could get regulatory changes affecting the pricing of power, or interest rates could go up a lot higher than people think.

Preferred Series H. Trading at around $16, and got really beat up on the downturn, but recently he has had a nice recovery. He chose this because he thinks rates are slowly going to rise.

The trend channel is up. Seasonally you get some strength over the summer. It could pull back to the high $30s.

(Top Pick Mar 30/16, Up 14%) Some of the utilities have not done all that well compared to the broader market, but they serve a purpose in an investor’s portfolio. He looks at it as a name that is stable with an attractive yield and does what it is supposed to do. They increased their exposure in the US, as did others in the space.

Basically an electric utility company. Pretty much all the businesses are regulated. This started as Nova Scotia Power. Lately they have been diversifying into the US. The stock has been flat in the last while because they had to issue a lot of stock to finance acquisitions, but in the medium to long term, those will pay off. If interest rates go up there will be some negative impact, but there should be more than sufficient growth to offset that.

One of his core holdings in the utility sector. He likes that they have been such good acquirers, and diversified themselves by going into energy transmission, etc. Very well situated with the operations that they have set up in the US. Expects they will continue to have dividend increases going forward.

Emera (EMA-T) or Fortis (FTS-T)? These 2 are new plays, so they behave similarly. This one is the winner. It is retesting old highs. The chart shows a whole series of higher lows. Buyers are willing to pay progressively higher prices for it. Any 2%-3% retracement would be a good entry point.

Recently, some of the defensive areas have been leading the market over the past few weeks. Typically that is a warning signal. It confirms his belief that we are going to enter into a period of consolidation. Everyone is getting defensive when the equity market is going higher. $43 is the level of resistance. The period of seasonal strength for the summer months, between July and all the way through to Sept/Oct. would be the time you want to be picking up more of this, the time when you want to become more defensive.