Fortis Inc. (FTS.TO)

(A Top Pick Aug 24/14. Up 12.93%.) He sold half of this in December and the other half in the spring. His total return was around 32%. The risk/reward now is very good and he took out a half position at around $36 recently.

It has fallen down to its usual long term low and has a nice yield. It is a peculiar play. Any expectations of rising interest rates are in the 5-10 year area and these get valued off long term interest rates. This is a steady and long term grower. You won’t hit it out of the park, but you get a decent dividend and capital growth.

This is your “meat and potatoes” utility type name, which he likes. What is being regulated is a stable cash flow and, as a result, a stable dividend. Have recently expanded into the US through acquisitions and about 30% of revenues come from the US. He doesn’t see anything wrong with owning this company, especially if you are not overweight “interest rate sensitive” securities. His preference is Emera (EMA-T), which is very similar, but where you are paying a lower multiple on a valuation basis. (See Past Picks.)

Given this environment with low interest rates, this provides good income. Made some great acquisitions in the electrical generating space. Recently sold off some non-core assets. The tough part about this company is that their acquisitions need to be big.

Really likes this company. A couple of years ago they made a major acquisition in Texas, which was really a game changer for them. Beyond that, their other power operations are operating pretty well. They continue to increase their rate base in places where they operate and future dividends are going to increase here still. At current levels, the payout is rather modest, so he thinks they can maintain the dividend for some period of time. You are earning 3.8% on a growing company.

(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.