Fortis Inc. (FTS.TO)

There is a sector rotation happening. This was getting a little too frothy and people were piling into it. Then they bought a US distribution company which they really paid a lot for. The street didn’t like that, which is why the stock checked back. Looking out a year or 2, you are going to be fine with this.

It got knocked around a bit on the acquisition. It is one of the most aggressive companies in this sector.

The utility sector is one of the strongest sectors for these troubled times. Valuation is silly, it is way too expensive on a multiple basis. However, you want to have utilities, telcos and consumer staples companies. Those should be the bedrock of your portfolio.

The recent deal was viewed very negatively by the street. It is a huge investment on this company’s part compared to its market cap. A lot of Americans are going to be getting shares in the company, and are not very happy about it. About 50% of those shares are going to be recycled. The company is being viewed increasingly as empire builders.

Making a big US acquisition which is supposed to be 5% accretive, and to be funded with a little bit of cash and shares. Stock has come off 12%, and thinks there is some concern about further divestiture into the US. Stock has had a good run, so you are seeing them give a little bit back. A name he thinks he would be adding to, given the recent pullback. These are the kind of names you want in your portfolio given all the market volatility, because the utility sector in the US and Canada have been some of the best performing sectors year-to-date. Dividend yield of 4.2%.

Stock was down about 9%-10% today because they announced an acquisition of ITC, a US electric transmission company. It is fully regulated, so a very stable earnings stream. They are paying cash and stock for this acquisition, so ITC shareholders are going to end up owning over 25% of the company, and Fortis is going to list in New York. The company indicated that dividends were going to grow every year by 6%, and that is still on track.

A utility with operations in Canada as well as the US. Their timing for buying operations in Arizona was pretty good, as they bought while the Cdn$ was relatively higher. Have a consistent record of raising their dividend with the longest record of raising their dividend on the TSX. Likes this in this low environment, and it should continue to do well with their strong management team. Dividend yield of 3.9%.

He put this in for people trying to put a toe into the market. This has consistently increased its dividend every year since they became a public company. A natural organic rate base growth of about 5%, and that is how much their dividend goes up a year. Well-managed company. Dividend yield of 4.1%.

Some of the more defensive sectors in this market are behaving better than others. Utilities both in the US and Canada is outperforming. Fortis is gas and electric utility. They have some regulated and unregulated assets. The company has had a tremendous record over time of raising their dividend. It gives you a 4% yield. Pretty attractive. Won’t be a big participant in a resurgence in North America growth. As a defensive holding it pays a nice yield, you are not going to go too far wrong. If at some time you think we are going to see a significant rise in interest rates, that is going to be a problem for them.

(A Top Pick May 20/14. Up 19.04%.) Of the 3 picks, this is the one for downside protection and conservative, because he was expecting interest rates to fall in 2014. With the acquisitions they have made in the US they have electricity production and hydroelectricity coming on stream. When the rate base grows, the earnings rise. The dividend has been bumped a couple of times.

Has started to leg into this again. An excellent name with an excellent balance sheet. Loves the utility space. Has a pretty good dividend. The sector ranks in the top 5 out of 13 in the TSX.

Chart shows a little bit of a downtrend and given the fact that we are stepping into a seasonal period where utilities tend to underperform, he would not go into this holding.

Utility stocks are very, very expensive. He thinks a brutal 6 months is coming. His model price is $31.75, a negative 14%.

This is a regulated utility and he doesn’t think there are any issues with the dividend. Doesn’t expect there is a lot of growth in the near term and there could be a bit of pressure if rates start to rise quickly or unexpectedly. The business is sound.

4.1% dividend. Assets in the US and Canada. Bought a regulated utility in Arizona two years ago. Great history of paying dividends. It is well run and the concern over interest rates is overdone. They have good growth potential outside of Canada.