Friday, September 10, 2010

Canadian Utilities Ltd 2

I do not currently own this stock (TSX-CU). It is on the dividend lists that I follow, of Dividend Achievers and Dividend Aristocrats (see indices). This is a stock you buy for increasing dividend income and some capital gain. Possible problems are that it is 75% owned by ATCO and shares on TSX are non-voting.

Over the past year, there has been 2.1M of Insider Selling, mostly at the end of 2009. There has been minimal Insider Buying. Both the CEO and the CFO have more stock options than shares. The opposite is true of the officers and the directors, but they also have lots of stock options. The company is buying back non-voting shares for cancellation. I know that some analysts like buy backs, but I am not keen on them and recently analysts have been changing their minds on whether buy backs are good.

When I look at the 5 year median low P/E, I get one of 13.7 and when I look at the 5 year median high P/E, I get one of 17.7. On a relative basis, the current P/E ratio of 14.5 is a good one. It is a little high for a utility, but it is not high on a relative basis. The next thing, of course, is the Graham Price. I get one of $42.39 and this about 13% below the current stock price of $47.91. However, generally over the past 10 years the stock price has been lowered than the Graham Price by an average of almost 8.9%. The stock price has also been lower than the Graham price, 7 of the past 10 years.

When I look at the Price/Book Value, I get a 10 year average of 2.05 and a current ratio of 1.98. This current one is 96% of the 10 year average. This shows a good stock price, but a buy signal is when the current one is 80% below the 10 year average. The current yield at 3.2% is just higher than the 3% average yield. However, the 10 year average high yield is 4%. All this shows a fair, but not great stock price.

This company has preferred shares. There has been some controversy on whether preferred shares are equity or liabilities. I think basically, the debate has them as liabilities, but I show the effect of treating preferred shares as not a liability. See my spreadsheet notes at cu.htm.

When I look at analyst recommendations, I find a few Strong Buys, lots of Holds and one Sell recommendations. The consensus recommendation would be a Hold. (See my site for information on analyst ratings.) I do not know why the one sell. Most analysts like the strong management and good record of dividend increases. Some feel that this stock is fully valued (that is there is not much current room for the stock price to move up). Others feel it is cheaper than other utilities at this time.

I have enough utilities in my stock portfolio, so I will not be adding this one. I will continue to track it, as it is a good utility stock.

Canadian Utilities Limited operates in four business segments: regulated natural gas operations; regulated electric operations; technologies; and power generation. These operations provide service to industrial, residential and commercial customers. Other businesses consist of natural gas gathering, processing, storage and natural gas supply management and technical facilities management. ATCO (ACO.X) owns 74% of this company. CU.X is voting and Class B, CU is non-voting and Class A. Its web site is here CDN Utilities. See my spreadsheet at cu.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.

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