Thursday, November 5, 2009

AltaGas Income Trust

I am reviewing this stock (TSX- ALA.UN) today as I own this stock and I was reviewing it for a possible purchase. I am looking for some stock to buy this fall. I like doing purchases in the fall because the stock market often goes lower at this time of the year. It is also a good time to reposition your portfolio. That is sell off stock you no longer want to buy something to like better. I will talk about my repositioning later this week.

Mostly this stock has good growth figures. There are a couple of things I would like to point out on this stock. One is that they keep increasing the number of units outstanding. The new units come from a number of places, including the exercise of options and conversion of exchangeable units. However, the biggest increases come from their DRIP option. That is, if you own shares in this company, you can use your distributions, plus put in extra money to buy more units. If you do not know what DRIPs are, see investopedia for a definition.

Because of the increase in units, the revenue growth is good, but the revenue growth per shares is not. For example, the 5 and 10 year growth figures for revenue are 21% per year and 31% per year. When you look at revenue growth per share the 5 and 10 year figures are -7% per year and -2% per year. This is quite a different picture. The other growth figure I want to talk about is that for Cash Flow. The 5 and 10 year figures per share are 6% per year and 19% per year. The 5 year figures are acceptable, but not great. The thing is that the cash value grew between 2007 and 2008, but not as fast as the increase in units.

The next thing to talk about is the Liquidity Ratio and the Asset/Liability Ratio. The Liquidity ratios are low but at least they are over 1.00 and are at 1.01. I prefer this ratio to be 1.50, but at least the current assets cover the current liabilities. This Asset/Liability Ratio is 1.86. This is much better where anything at or above 1.50 is good.

The one item I do not like is that the Accrual Ratio is quite high. It was 18% at the end of 2008. It has now come down quite a bit to a current 11%. However, anything over 5% is high and I prefer this to be a negative figure. A high Accrual Ratio can call into question the quality of the earnings. However, I must admit, this ratio has been high before.

As I said before, I do own this stock and I have just bought some more. This good thing about this income trust is that the company has stated that they will become a corporation before 2011 and they intend to keep the current level of distributions after the conversion. I have updated the spreadsheet to include the, just issued, 3rd quarterly report.

AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is See my spreadsheet at

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. See my website at for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at

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