Arc Energy Trust 2

Yesterday, I talked about this oil and gas stock (TSX-AET.UN). It is a Canadian oil and gas stock, which pays distributions based on commodity prices. It pays good dividends over the long haul, but dividends do fluctuate according to commodity prices. It will stop being an income trust in 2011. Dividends will continue to fluctuate based on commodity prices. It is one of the income trust companies that is well thought of.

When I look at the P/E ratio, I get a 5 year low median ratio of 8.8 and a 5 year high median ratio of 13.6. The current P/E ratio, based on estimated earnings is 16, which is rather high for this stock. This is because earnings are expected to be lower this year than in the past. However, the earnings are higher at $1.18 than last year’s earnings that were $.96.

I get a Graham Price of $16.65 for 2010 and the current price is higher than this by just over 12%. For most years in the past, the stock price has been at or below the Graham Price at some time. The current Price/Book Value ratio is 1.83 and the 10 year average is 2.04. The current P/B ratio is about 90% of the 10 year and this shows a good, but not great current stock price.

The current dividend yield at 6.3% is not a bad yield, but the 5 year average is 9.7%. However, last year this stock paid out some 61% of its cash flow. This year it is estimated to payout 46% of its cash flow. It might be expected that the company may yet want to pay out a smaller percentage of the cash flow. Corporations cannot afford to payout as high a percentage of its cash flow that unit trust companies can.

The best thing to say about this company is that there is about $1.3M of insider buying over the past year, with most of the buying by officers of this company. This is very different from a lot of other companies I have been reviewing lately.

When I look at what the analysts are saying, I find that there are lots of Strong Buy recommendations, some Buy recommendations and a very few Hold recommendations. The consensus would be a Strong Buy. (See my site for information on analyst ratings.) Even the analysts with the Hold recommendations like the company, but it is just felt that the price will go lower before picking up again. The difference between the Buy and Strong Buy recommendations is the expected stock price within the next 12 months. This ranges from $22 to $24.

I can see why this stock is liked. Most analysts consider this company to be well managed. It has recently moved into getting gas from the Montney Shale formation. You certainly cannot complain about the current dividend yield of over 6%. The ratios that I look at show that the while the stock is not expensive, neither is it particularly cheap. It is a very positive sign that there is insider buying.

Financial Aid, a site about dividends, stocks and splits, tells why Mason Granger, a portfolio manager with Sentry Select Capital Corp, likes this stock. At Alacra Pulse a report by Analyst by Richard Wyman of Canaccord Adams is highlighted.

Arc Energy Trust acquires and develops long-life low declining oil and gas properties in Western Canada. Its web site is here Arc Energy. See my spreadsheet at aet.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.