Hi Lou,
I have had [Fortis Inc] for some time and have done very well and it has a good dividend record but there have been a number of management and director changes recently and I worry that the company has lost its "get up and go' and is now being run by Bankers and Accountants? Your views?
Thanks,
Tom
Hey Tom,
Thanks for the assignment and congratulations on having picked a wealth generating investment! Fortis Inc is one of the largest electric and gas utilities in Canada. In addition to its facilities in Canada, the company also operates in the United States and the Caribbean. In January, management announced that it intended to sell off its property division. The sale of the noncore assets is forecast to provide an estimated $1-billion to drive future growth in the utilities space.
FTS has built a strong business with significant barriers to entry, but that doesn't mean that it is unassailable. There are a lot of rumbling in the utilities industry about disruption to the business model coming from renewables such as solar and wind. I am waiting for the April 30 announcement from Tesla where they are expected to reveal their stationary battery for use in homes and businesses. Effective and efficient storage of electrical energy is a game changer, and a major disruptor that has to be monitored.
Regarding the changes in management that you cited, I would suggest that you look into the personal dossier of the new managers and directors, and if they have not exhibited the traits that you see as essential, then you have to make a decision on that basis. It has been my experience that the right people make you money and the wrong people lose you money. In terms of evaluations, you should give the accountants a pass, but please keep whipping the bankers.
An inspection of the charts will form the basis of my analysis.
The three-year chart indicates that 2014 was generous to investors who got on the ride. The shares started a decline in May of 2013 and touched a low below $29 by late December. At that point, the moving average convergence/divergence (MACD) and the relative strength index (RSI) flagged the beginning of a move up. In late January of 2014, the stock retested the low and formed a double bottom, which signalled a washing out of the sellers who had been in control of the market.
The golden cross that formed in late March of 2014 exposed the possibility that greater gains could be anticipated. From there, the shares rode to a 52-week high of $42.23 by late January of 2015. Coming off of the highs, the MACD and RSI both warned that selling pressure was mounting. At this point in time, it appears that FTS is trading in a tight range as investors await the release of Q1 results in May.
The six-month chart provides an enhanced view of the tight range that surfaced in February with support at $38.50 and resistance at $40. Make note of the sell signal generated by the MACD and the RSI in late January. FTS appears to have been pulling back from an overbought situation as investors await the release of Q1 on May 5. There is nothing on the charts to suggest that 2015 will be as bountiful as 2014, but lets not forget the 3.43-per-cent dividend yield or the 42 years of annual dividend increases.
Make it a profitable day and happy capitalism!
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