EUR 850.00 For Business Accounts Only

Morningstar | Fortis Extends 6% Dividend Growth Guidance to 2023

We are reaffirming our CAD 46 fair value estimate, along with our narrow economic moat and stable moat trend ratings, after Fortis reported third-quarter adjusted earnings of $0.65 per share compared with $0.61 in the year-ago period. Year-to-date earnings were approximately flat year over year due to mark-to-market losses at Aitken Creek and U.S. tax reform.

Management extended its 6% dividend guidance out another year to 2023, as management continues to identify capital investment opportunities supporting dividend growth. Management recently increased its five-year capital program $2.2 billion, to $17.3 billion for 2019 to 2023. Between 2018 and 2021, rate base its expected to grow over 7% annually, dropping to 5% annually 2021 and 2023. We continue to be impressed in management's ability to execute on numerous capital growth opportunities.

To fund the company's five-year capital program, Fortis will use mostly cash flow from operations and regulated debt. Management did note that $1 billion to $2 billion in funding would come from asset sales. While management didn't specifically mention which assets, we expect most of the proceeds will come from Fortis' unregulated assets. No additional equity is expected.

Negatively, FERC recently ruled that ITC was not completely independent from its parent Fortis, cutting its independent transmission allowed return on equity adder to 25 basis points, down from 50 basis points. Each 10 basis points reduction in allowed ROE lowers Fortis' earnings $0.01 per share. We don’t expect the ruling to have a material impact on our fair value estimate.

At the upcoming Edison Electric Institute conference, we expect management to update investors on their 2019 earnings outlook, further detail on potential capital projects, and funding plans.