ATCO Ltd

I never owned this stock (TSX-ACO.X). This is a Canadian Utility stock. It is the sort of stock that is for conservative investors and a great one to start off a dividend paying stock portfolio. The reason I do not own this particular one is that I have other conservative utility stock that have the same dividend characteristics. However, this is still a very good utility stock.

You would buy this stock for growth and dividend income. If you held this stock, using average prices over the last 5 and 10 years, your total return would be 11.5% and 10% per year, respectively. You are getting about 2% of your returns are in dividends each year. Considering that we are in a recession, the 5 year return is very good. This is the value of utility stocks. They tend to be very stable.

This stock increases their dividends each year and for the past 5 and 10 years, the growth in dividends is at 7.4% and 9.6% per year, respectively. This stock is, of course on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices). This is a good example of a stock on these lists that deserves to be there.

For this stock, the last 5 and 10 year growth in revenues and cash flow has not been that good. In fact there really hasn’t been much growth in revenues. The growth in cash flow has been better. These are the lowest growth figures for this stock. However, the dividends and their yearly growth are quite safe as the company pays out a low and very sustainable percentage of the cash flow.

The next thing to talk about is the great balance sheet. This stock’s Liquidity and Asset/Liability Ratios are consistently high. As of the end of 2009, they were 2.29 and 1.68 respectively. For these ratios, you want to see them at 1.50 or above. Perhaps the last thing to talk about is the Return on Equity. The 5 year average ROE for 2009 was 14.3% and the ROE for 2009 was 14.1%. The ROE for the first half of this year is again good at 14.4%. The Leverage (Asset/Book Value) is a little high at over 5, but most utilities carry debt and this is not unusual.

In summary, this is a great utility stock. For a utility stock, the yield is a little low, but it is a well managed company. The other thing to mention is the dual stock under this company. The ACO.X stock is a non-voting stock. The Southern family effectively controls this stock.

ATCO LTD. is a management holding company with operating subsidiaries in electric and natural gas utility operations, independent power operations, production, storage, processing, gathering, delivery of natural gas, technical facilities management for the industrial, defense and transportation sectors, the manufacture, sale and leasing of industrial shelters and industrial noise abatement technologies. ATCO has a 52% stake in Canadian Utilities Ltd. The company utilizes a dual share structure and it is effectively controlled by R.D. Southern. Ronald D. Southern owns 83%. The Southern family of Alberta made its wealth by doing a fine job of managing the company and its subsidiaries. Company has two classes of shares voting and non-voting. Its web site is here ATCO. See my spreadsheet at aco.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.