AltaGas Ltd

Sound bite for Twitter and StockTwits is: Dividend Growth Utility. Stock is relatively cheap. Yes I do know that TSX now puts this stock in the energy sector, but to be it is infrastructure so closer to a utility. There does not seem to be any good reason for this stock to have fallen so far. Are investing getting confused by the classification? See my spreadsheet on AltaGas Ltd.

I own this stock of AltaGas Ltd (TSX-ALA, OTC-ATGFF). When I bought this stock in 2009 it was on many dividend growth stock lists. In 2009, I saw that this stock also had good growth in Revenues, Earnings, Dividends, and Stock Prices over the last 5 and 10 years. The stock had a fairly strong balance sheet. I took a small position in this stock, and planned to wait and see how things go with this stock before buying more. I bought more in 2010 and 2012.

This company shows not only EPS, but normalized EPS (NEPS), Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). Earnings are normalized for after-tax amounts related to transaction costs related to acquisitions, development costs related to energy export projects, provisions on assets and on investments accounted for by the equity method, unrealized gain on risk management contracts, and loss on long-term investments.

If you look at EPS and NEPS the company cannot afford their dividends. It is only under FFO and AFFO that they can. The Dividend Payout Ratio (DPR) for EPS for 2017 is 1170% with 5 year coverage of 262%. The DPR for NEPS is 177% with 5 year coverage of 153%. The DPR for FFO for 2017 is 59% with 5 year coverage at 52%. The DPR for AFFO is 57% with 5 year coverage at 58%. For EPS the DPR 5 year coverage has not been below 100% since 2007 and for NEPS the DPR 5 year coverage has not been below 100% since 2009. So this is a long standing situation.

Do not forget that EPS is rather a made up number and accounting is just as much art as it is science. On next Tuesday I am discussing this subject of accounting here.

The dividends on this stock are basically from good to high. The current dividend yield is 8.8% with 5, 10 and historical yields at 4.87%, 5.69 and 6.21%. The dividend growth used to be good, but is low for the last 10 years and moderate for the last 5 years. The 5, 10, 15 and 16 growth in dividends is at 8.68%, 0.23%, 14.54% and 17.96% per year.

The reason for the low increase for 10 years and higher increase by for 15 and 16 years is because this company became an income trust in 2004. When it did it raised the dividends by about 221%. Then in 2011 it switched back to a corporation and decreased dividends by around 39%. After the decrease in 2010 it began to raise dividends again.

The most recent increase occurred at the end of 2017 and the increase was for 4.3%. Analysts expect that this company will continue to raise the dividends. They also expect the yield to go up.

I have total returns going back some 18 years. The stock price hit a peak in 2014 and has been moving down ever since. All utilities have been moving lower lately. I look at this as a utility but TSX classifies it under energy. The total return for the past 5, 10, 15 and 18 years is 2.63%, 7.37%, 19.57% and 19.11% per year.

The portion of the total return attributed to capital loss for the past 5 years is 3.14%. The portion of the total return attributed to capital gains for years 10, 15 and 18 is 0.80%, 7.70% and 9.07%. The portion of the total return attributable to dividends for the past 5, 10, 15 and 18 years is 5.77%, 6.58%, 11.87% and 10.05%.

I made purchases of this stock in 2009, 2010 and 2012. My total return is 10.51% with 7.95% from dividends and 2.56% from capital gain. The dividends I have received had paid some 56.9% of the cost of my stock. For the stock I purchases in 2009, 2010 and 2010 I am making a yield of 13.8%, 12.1% and 7.2% on my original purchase price.

The 5 year low, median and high median Price/Earnings per Share Ratio are 49.95, 60.72 and 71.49. The corresponding 10 year ratios are 24.24, 28.48 and 32.71. The historical ratios are 13.31, 16.05 and 18.80. The current P/E Ratio is 27.97 based on a stock price of $24.89 and 2018 EPS estimate of $0.89. Based on P/E Ratios of the past 5 and 10 years this stock price testing suggests that the stock price is relatively reasonable and below the median to cheap.

The 5 year ratios are so high because when there was a drop out in earnings the stock price did not fall. For 2019 and 2020 the P/E Ratios are more reasonable at 18.30 and 16.48. The 2019 P/E Ratio of 18.30 is based on EPS earnings estimate for 2019 of $1.36 and a stock price of $24.89. The 2020 P/E Ratios of 16.48 is based on EPS earnings estimate for 2020 of $1.51 and a stock price of $24.89. These P/E Ratios are more reasonable.

I get a Graham Price of $19.40. The 10 year low, median and high median Price/Graham Price Ratios are 1.31, 1.54 and 1.73. The current P/GP Ratio is 1.28 based on a stock price of $24.89. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median Price/Book Value per Share Ratio is 1.71. The current P/B Ratio is 1.32 based on Book Value of $3,296M, Book Value per Share $18.80 and a stock price of $24.89. This stock price testing suggests that the stock price is relatively cheap.

The historical dividend yield is 6.21%. The current dividend yield is 8.80% based on dividends of $2.19 and a stock price of $24.89. The current yield is some 42% higher than the historical one. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Sales (Revenue) Ratios of 2.17. The current P/S Ratio is 1.17 based on 2019 Revenue estimate of $3,908M, Revenue per Share of $22.30 and a stock price of $24.89. The current P/S Ratio is some 46% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations I find Buy (3), Hold (7) and Underperform (1). The consensus would be a Hold. The 12 months Stock price consensus is $29.36. This implies a total return of 26.76% with 8.80% from dividends and 17.96% from capital gains based on a current price of $24.89.

Kay Ng of Motley Fool thinks this stock is a buy but there is no reason to rush. Grace Strickland on Simply Wall Street thinks the stock is a bargain at the current price. See what analysts are saying about this stock on Stock Chase. They like the company but hesitate to suggest a Buy recommendation.

AltaGas Ltd is a diversified energy infrastructure business operated collectively by its operating subsidiaries. The Company offers natural gas, power and regulated utilities and has three operating segments of Gas, Power and Utilities. Its web site is here AltaGas Ltd.

The last stock I wrote about was about was TransCanada Corp (TSX-TRP, NYSE-TRP)... learn more. The next stock I will write about will be Melcor Developments Inc. (TSX-MRD, OTC-MODVF)... learn more on Monday, March 26, 2018 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.