Fortis Inc. (FTS.TO)

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.

Thinks there is limited upside, and the dividend growth is not going to be all that meaningful. This company has been doing huge, huge transactions trying to buy assets in the US to add a little bit of growth. You really have to wonder whether it is worth it. This has not gone up because it is a huge growth machine, but because it is a yield machine.

(A Top Pick May 7/14. Up 24.41%.) Continues to like this. Had a couple of acquisitions in the US in the last couple of years that are really coming on stream now from an earnings point of view. Earnings are going to be up 20% plus this year, and it is likely they will be increasing their dividend a little faster.

(A Top Pick March 7/14. Up 30.63%.) Made a big acquisition in the US, which is probably the point where people were having doubts. This was a game changer for them and gave them more exposure to the US. The foreign exchange has certainly worked in their favour. Good management. Thinks the 3.5% dividend is very safe. He continues to hold, but wouldn’t be adding to his position at this price.

Hold off buying it until you see how the rate picture unfolds later this year and see what the impact is on the high PE income stocks will be.

Utilities tend not to perform well at this time of year. They are now starting to come off. As a utility, this is more defensive, so you want to take a more cyclical approach at this time of year. This has a rolled over and is now starting to underperform the market. You want to go more towards this in the summer months. If you own, take your profits here.