Fortis Inc. (FTS.TO)

(Past Top Pick, July 15, 2014, up 17.74%) Has done well. Sold most of their stock in January and February. Recently bought some and may be buying more today. Well run company. They love them.

(A Top Pick May 7/14. Up 23.74%.) Has owned this since it became public. A slower dividend grower. Has a decent yield. Sold off their real estate assets which improved the balance sheet.

Fortis (FTS-T) or Emera (EMA-T)? His short answer is Emera because he owns it. A very meat and potatoes, boring utility name.

Have been selling their non-core assets with lower returns, and investing in higher growth opportunities. They have $6 billion in CapX needs through 2017. That should help to fuel their growth. He sees 9% EPS in that period compounded and 6.2% dividend growth. Trading around 17X versus the group at around 20X. Payout ratio is low so they can boost the dividend. About 45% of their earnings are coming from the US.

(A Top Pick July 14/14. Up 13.37%.) Sold this in 2 tranches, one in December and the 2^nd one just recently. Still likes the space, but the whole area started coming off hard and he wanted to protect the gains. He thinks he can Buy it back a little bit lower. Loves the name. Quality balance sheet.

Stock vs. Stock. FTS-T vs. EMA-T. He is short both. Utilities are overvalued. They are very levered. EMA-T has more organic opportunity. He would not be in either and is short both. If you have to be long, get EMA-T.

His preferred utility has been Emera (EMA-T). Fortis used to be called Canada’s growth utility, which they have now ceded to Emera. There is nothing wrong with Fortis, but there is nothing exciting there. He feels both of them are a bit stretched. Both have been beneficiaries of the quest for yield. If interest rates go up it will tend to hurt utilities.

A company that is well-run and pays a reasonably good dividend. Has a little bit of growth from their US acquisition. A solid name to have. Have the capacity to grow their earnings in the low to mid single digits. Thinks this and the preferred shares are a good bet.

The US is 40% of their asset base. They have the longest record of dividend increases in Canada. 3.5% dividend.

This had been going sideways since 2011, and broke out in the middle of 2014. The recent pullback is probably inspired by overall market volatility. As long as it doesn’t crack the base breakout point of around $35, he would think the stock is in pretty healthy condition.

Owns this in a few accounts for clients that really need income, but got out of most of it when she saw that growth was slowing and they had some regulatory hearings coming up. This is now largely behind them. Have done a couple of acquisitions that will give them more growth. Feels it is a sound investment for someone who needs yield. Given what they have in their backlog, she feels the dividend will be increased every year. Yield of around 3.8%.

What would be the impact if they sell their 23 Canadian hotels off? This is probably a good time to sell their hotels. They are nonstrategic for the company. This is probably 7% of the outstanding assets. Feels this company is very expensive for the return you are getting. He is Short this company.

This one goes in waves. Their last acquisition takes a long time to close. It is a heavily regulated business. He looks at the interest rate risks and they are low now, and he forecasts them to be low for the foreseeable future. He would prefer some of the midstream type pipeline companies, but this one is very conservative and they are never going to cut the dividend. You won’t see a screaming growth come out of this.

Fortis (FTS-T) or Emera (EMA-T)? The real difference between these 2 is that one is Western Canada and the other is eastern Canada. He doesn’t own either. They’re both trading at around 19-20 times earnings, which is a little rich going into a potentially rising rate environment. Between the 2 is preference would be towards Emera.

He sees some upside. You get stable growth in earnings and cash flow. It is reasonably valued. It is interest rate sensitive. People pile into it if they want consistency in dividends and dividend growth. Total return should be 5-8%, including 3.5% dividend.