I saw this week that Fortis Inc. is raising at least $1.1-billion in an equity offering at a lower price than the shares were trading at before the announcement. I also noticed that Fortis terminated the 2-per-cent discount on its dividend reinvestment plan (DRIP)? As a Fortis shareholder, should I be concerned about these things?
Not at all. Fortis (FTS) plans to use proceeds of the equity offering to, among other things, help fund its five-year, $18.3-billion capital plan, which includes modernizing its electricity grid and building capacity to deliver more renewable energy. Capital investments such as these benefit utilities because they increase the “rate base” on which they can earn a regulated return. So the money Fortis raised will help the company increase its earnings.
The fact that the offering was done at a modest 1-per-cent discount to the market price is nothing to be concerned about; a discount is standard when companies are selling shares that brokers must resell to the public. In Fortis’s case, the offering includes: a $600-million “bought deal” with a group of Canadian underwriters; a $500-million sale directly to a U.S. institutional investor; and up to an additional $90-million “over-allotment option” for the underwriters.
As for the termination of the 2-per-cent discount on Fortis’s DRIP, investors enrolled in the plan may not like it because their reinvested dividends will now acquire additional shares at regular market prices. But it’s another positive sign for the company, indicating that it has ample cash and doesn’t need to offer an inducement to DRIP investors.
With the $1.1-billion share offering, “Fortis is now well positioned to fund its [growth] program,” spokeswoman Karen McCarthy said in an e-mail. “The 0-per-cent DRIP is also broadly in line with our industry sector, with the large majority of sector corporations no longer having discounts in place. Further, there are some who have suspended their DRIP plans altogether. Our DRIP program remains in place with no further plans for change.”
Bottom line: The money Fortis raised will help the company become even more profitable, which in turn will help support continued dividend growth. Fortis hiked its dividend by 6.1 per cent in September and is targeting increases of about 6 per cent annually through 2024. (Full disclosure: I own Fortis shares personally and in my model Yield Hog Dividend Growth Portfolio.)
Do you expect that any of the banks will raise their dividends this quarter? If so, which ones?
Bank of Nova Scotia (BNS) reported fourth-quarter earnings on Nov. 26 and didn’t raise its dividend. Bank of Montreal (BMO) is up next on Dec. 3, and will likely raise its dividend by about 3 per cent, in keeping with its pattern of semi-annual increases, Canaccord Genuity analyst Scott Chan said in a note. Mr. Chan also sees National Bank of Canada (NA) and Laurentian Bank of Canada (LB), both of which report Dec. 4, raising their dividends by 4 per cent and 1 per cent, respectively. Royal Bank of Canada (RY), which also reports Dec. 4, and the remaining banks – Toronto-Dominion Bank (TD), Canadian Imperial Bank of Commerce (CM) and Canadian Western Bank (CWB), all of which report Dec. 5 – will likely hold their dividends steady, he said.
Do you think marijuana stocks are a good buy after the recent drop? Which ones do you like?
I don’t like marijuana stocks now and never have, for three reasons. First, they don’t pay a dividend. Second, nobody knows how to value them properly because their future earnings are a big question mark; short-term expectations were far too rosy, which is why the stocks have been crushed. Third, even though marijuana is now legal, I don’t want to invest in a product that has been shown to harm people – especially young people. If that doesn’t bother you, and if you like to gamble, my advice would be to spread your risk around by investing in a cannabis exchange-traded fund such as the Horizons Marijuana Life Sciences Index ETF (HMMJ). I’ll stick with proven dividend stocks like the ones in my model portfolio, thanks.
E-mail your questions to jheinzl@globeandmail.com.
Special to The Globe and Mail