ITC Holdings (ITC) Declares 15% Hike In Quarterly Dividend

The board of directors of ITC Holdings Corp. (NYSE:ITC) has approved an almost 15% hike in its quarterly dividend rate. The revised dividend of 21.55 cents per share will be distributed on Sep 15, 2016 to shareholders of record as of the close of business on Sep 1.

The recently approved hike marks an increase of 2.8 cents from the last dividend rate of 18.75 cents per share and is in sync with management’s long-term dividend policy. The new annualized dividend amounts to 86.2 cents per share, up from 75 cents paid earlier, resulting in a dividend yield of 1.8%.

ITC Holdings’ management has consistently increased its dividend payout over the last11 years.

Pending Acquisition by Fortis

The Oklahoma Corporation Commission has given the final nod to Canadian utility major, Fortis Inc.’s proposed takeover of ITC Holdings. The deal was valued at nearly $11.3 billion as of Feb 8, 2016, when the acquisition was announced.

Under the deal, which is expected to close by late 2016, shareholders of ITC Holdings are entitled to $22.57 in cash and 0.7520 of a Fortis common share for each ITC common share.

The acquisition will enable ITC Holdings to achieve its long-term strategy of upgrading transmission facilities to enhance reliability, expand its reach into untapped energy markets and lowering the cost of electricity distribution.

Sector Overview

The utility sector is considered a defensive play or safe haven during turbulent market conditions. Geopolitical turmoil and higher volatility were haunting the markets from the beginning of the year. Britain’s decision to leave the EU added to the uncertainty, driving yields on government bonds to record lows.

Further, the Federal Reserve’s stance to hike interest rates remains dovish. In such a scenario, utility companies made the biggest gains as low interest rates and bond yields make their high dividend payments more appealing. Additionally, utility stocks offer excellent capital appreciation over the longer term.

The utilities sector reported year-over-year earnings growth of 8.3% as against the S&P 500’s 3.3%decline in the second quarter of 2016.

Zacks Rank & Key Picks

ITC Holdings carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the utility space include Power Corp. (NYSE:KEP) , Spark Energy, Inc. (NASDAQ:SPKE) and DTE Energy Company (NYSE:DTE) . Both Korea Electric and Spark Energy sport a Zacks Rank #1 (Strong Buy), while DTE Energy carries the same rank as ITC Holdings.