Fortis Inc. (FTS.TO)

More of a growth utility. Flat earnings for 2 years. 2013 they had a bad capital decision by BC gov’t that hurt their electrical distribution business. They bought an electrical utility in Arizona and will close at end of year so next year these two things will be out of the way, so earnings are likely to be up double digit easily.

Has been quite a disappointing stock over the last couple of years for various reasons. Have made modest dividend increases as well as doing 2 acquisitions, one in New York and the other in Arizona, which should be consummated in the 4^th quarter. Together with some more favourable utilities commission awards and the BC Hydro Electric project, cash flow should grow at about 6% per year for the next 4-5 years. You should get low double-digit returns. Yield of 3.98%.

A company that hasn’t really grown for a lot of years and, as a result, it is trading at a cheaper multiple. Trading at around 15X and he thinks it should trade at around 18X given where bond yields are. Sees a lot of organic growth coming over the next year and over the next 5 years he sees 6.5 billion. Thinks they can grow their earnings by about 8.5% between now and 2015. Sees a lot of growth potential in 2015 in BC with LNG and in Alberta with expansions. Feels the dividend is safe.

Stock is underwater year-over-year. This could be an entry point right now but he could find better companies yielding 4% dividends and with better growth.

Purchased UNS energy. Expects approval in the next number of months and should close before year end. Increases footprint for this company. This management has been fairly adept at expanding the rate base for this company. One of the larger investor owned distributors of utility and power and Canada. Over 4% yield. Represents fairly good value at these levels.

He is on the fence. The utilities as a group were very poor performers in 2013. It was partly because interest rates were going to rise. He has not been expanding this sector and wondering about pulling back and putting funds in other sectors. This Arizona purchase has cast a new light on it.

A utility based in St. John’s Newfoundland. 2014, with operations in Alberta and BC. Gas transmissions. 2014 will be a transition year. As we get to 2015, they should have hopefully closed their Arizona utility acquisition and he expects some decent EBITDA and cash flow growth. To finance the Arizona deal, they sold some innovative convertible debentures. Have a record of dividend increases on the TSX, which he likes.

Announced a relatively large US acquisition in December that they were trying to fund with a hybrid security that looked somewhat like a convertible debenture. That security had not sold very well. This is now out of the way and you should start to see the shares perk up a little. Their acquisition should be very modestly accretive. Always remember, this is a regulated utility, so it won’t be a high growth vehicle. If you buy this, it is really for the dividend and gradual dividend growth and gradual earnings growth.

Switch this to Pembina Pipeline (PPL-T)? That would be a good switch. Looking at his performance in 2013, the one sector that hit him hard was the electrical utilities. The sector is very safe and not bad dividends, but produced negative returns as a group in 2013. Likes Pembina as well as Inter Pipeline (IPL-T). There is a big need to expand the small pipeline infrastructure in Alberta. He can see real growth going on for the foreseeable future.

Recently acquired UNS Energy (UNS-N), a very big purchase for them. He is not very positive on the company. He would typically consider this as a Short position because it does not have a lot of growth in its business model. They use a lot of their free cash flow to fund their dividend. When they make acquisitions, they have to raise capital in the market, which makes it very unpredictable.

(Market Call Minute.) Big utility company. Stock hasn’t done very much for a long time. Not an unreasonable Buy, but he favours Canadian Utilities (CU-T) over this.

Has a really good book of business, 2 million customers in North America. If it broke below $30, it would cause him to have some bigger issues such as are rates going up higher or is the line in the sand of 3%-3.5% around the 10 year bonds, really going to hold. Very good risk/reward.

(Market Call Minute) Held flat and then investors got tired of it. It did not have enough yield to keep it up there.

Sold it because PE got too high relative to yield. Moved to REITs. Would not look at it now.

Track record is amazing. Longest track record of dividend increases in Canada. His problem is that their last acquisition did not have anything to the bottom line. He doesn’t trust management that this latest acquisition will add anything either. Doesn’t see synergies in acquiring a utility in Tucson, Arizona versus the utilities that they have now in Canada. Sold his holdings just before the last acquisition.