Canadian Oil Sands 2

I am continuing my review this stock (TSX-COS.UN) today as the annual reported for December 2009 has been published and when anyone talks about investing in Canadian Oil Sands, this is the stock that seems to be mentioned first.

The first good thing I see about this stock is that there is insider buying to the tune of .6M. There is also some insider selling, but it is about half of the buying. The latest buying was in late March, not long ago. The other thing is that dividends are expected to go up this year and next. If dividends stayed at the current $.35 per quarter, they would total $1.40 per share. However, analysts expect the dividends to be higher at $1.63. They also expect the dividends for 2011 to be higher still at $2.00. This is good news for this stock.

The next thing to consider is the old stand by of the P/E ratio and because this is a unit trust, the P/FFO. However, you slice and dice things, both these ratios are currently high. The 5 year average low P/E is 12.7 and the 5 year average high P/E 23.5. I get a current one of 18.2. It is not that bad, but it is a little high. The P/FFO is worse, as the 5 year average low is 9 and the 5 year average high is 17; and I get a current rate of 20. The P/FFO ratio is relatively worse than the P/E ratio. Of course, the other problem with using FFO (Funds from Operations) or Distributable Income is that the calculation of this figure has changed over the years.

I notice that on websites that give current P/E, they show one of 33.9. This is because they are using earnings of 2009, which were especially low. I also notice that the globe-investors site gives are forward P/E (i.e. one for 2010) of 17.5, but I must admit, I do not know what figures they are using or where they are from. A number of sites seem to confuse the earnings and the FFO figures.

Moving on to the Price/Book Value, I see that the current one is 3.62 and the 10 year average is 2.92. So, the current one is some 25% above the average. What you like to see for a good price is a current ratio below the 10 year average. The next thing is the Graham Price. The Graham Price for 2010 is $17.34 and the one for 2011 is $19.21. The current stock price of $29.68 is higher than both. It is some 71% above the 2010 Graham Price and 54% above the 2011 Graham Price.

I guess the last thing to look at is the yield. The 5 year average yield is 4.9% and the current one is 5.5%. This is good. However, the yield has been a lot better in the past. For example, the 10 year average yield on the low stock price is 7.4%. What you might gather from all this is that the stock price is relatively high, but not unreasonably so. The best thing you can say is the current stock price is below the high of 2008, as it reach $38.88 in that year.

So what do the analysts say? I find recommendations from Strong Buy to Underperform. However, the majority of the recommendations are Buys and the consensus recommendation is a Buy. (See my site for information on analyst ratings.) It seems that most expect 2010 to be better than 2009. It seems that the price of oil is expected to rise. Analysts mention that the distributions are strongly tied into the price of oil. Analysts also mention the strong balance sheet that this company has.

For a dividend loving stock buyer, I sometimes find this sort of stock interesting. You can make good money from such stocks over the long term. However, you cannot count on the dividends. And, just when you need dividends, they might be cut a lot. Oil prices tend to go down in recessions and therefore dividends on such stock will take a big hit in any recessions.

Canadian Oil Sands Trust provides a pure investment opportunity in the oil sands through its 36.74% interest in the Syncrude Project. Syncrude is an experienced oil sands operator, producing a high-quality crude oil for the past 30 years. With large, bitumen-rich leases located in the sweet spot of the Athabasca oil sands deposit and a fully integrated upgrading facility that produces 100% light, sweet crude oil, the quality of their Syncrude asset is very good. Its web site is www.cos-trust.com/. See my spreadsheet at www.spbrunner.com/stocks/cos.htm .

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 for stocks followed and investment notes. Follow me on twitter.