Image: ITC Holdings.

One key reason why investors choose to own utility stocks is to enjoy solid dividends, and the high yield of the Utilities Select Sector SPDR ETF (NYSEMKT:XLU) is evidence of how much more utilities give to their shareholders than most stocks. For ITC Holdings (NYSE:ITC), the next step after having dealt with a major shift in strategic direction is to refocus on shareholders, and coming into Thursday's third-quarter financial report, ITC investors were hoping that the company could keep up a solid pace of growth. ITC largely did so, and the dividend increase and stock buyback that the company announced recently both support the utility's long-term strategy. Let's take a closer look at how ITC Holdings' results held up this quarter and what investors should expect next.

ITC offers solid results
ITC Holdings' third-quarter results were strong as long as you went beyond the GAAP figures to look at adjusted figures. On a GAAP basis, revenue growth slowed to just over 1%, but adjusted operating revenues climbed 11% to $299.8 million, exceeding the 9% rise that most of those following the stock were expecting to see. GAAP net income fell 11% to $65.6 million, but on an operating basis, profits jumped almost 12%, and that produced operating earnings of $0.53 per share, matching the consensus forecast among investors.

Taking a closer look at how ITC did during the quarter, the utility said that higher base rates at its regulated utility units and a rise in regional cost-sharing revenue helped to push revenue higher. These are favorable trends that the company has enjoyed in past quarters as well. On the expense side of the income statement, operation and maintenance costs climbed 13% because of higher costs of managing vegetation on power lines as well as other substation and overhead-line maintenance work. Overhead costs jumped 16%, with higher labor costs taking a toll on the bottom line because of higher headcounts and greater use of professional services. Interest expense also rose because of higher borrowings to pay for capital expenditures.

ITC kept up its capital spending at similar levels to the earlier parts of the year, bringing its year-to-date spending to about half a billion dollars. The ITC Midwest has gotten more than half of that money, with the rest scattered across other portions of its network.

CEO Joseph Welch remained confident about the company's progress. "We continued to execute on our strategy to invest in critical transmission infrastructure, including base and regional capital, while delivering operational excellence at all of our operating companies," Welch said. He also pointed to the recent moves to return capital to shareholders as evidence that it "remains focused on prudent value return."

What should ITC Holdings investors expect?
In particular, ITC accomplished two key goals during the quarter. First, it boosted its dividend by 15% in August, paying $0.1875 per share on a quarterly basis. The move still leaves ITC's dividend yield at just 2.2%, which is far less than the Utilities Select Sector SPDR ETF's 3.5% yield, but it still marked an important move in the right direction.

In addition, ITC Holdings also moved forward with an accelerated share repurchase program to use up its remaining $115 million authorization by the end of 2015. Under the terms of the deal, ITC agreed in October to take initial delivery of 2.8 million shares, with the final number to be determined depending on how the stock price performs during the period of the repurchase program. The program isn't huge, representing just 2% or so of ITC's market capitalization, but it nevertheless confirms the utility's commitment to getting more money back into shareholders' hands.

Overall, ITC Holdings still expects to finish 2015 on target, keeping its past earnings guidance unchanged. Investors will have to stay aware of industrywide issues like rising interest rates and how they affect ITC in comparison to the bigger companies in the Utilities Select Sector SPDR ETF, but for now, ITC continues to execute well and appears poised to keep extending its reach in the future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.