Thursday, September 9, 2010

Canadian Utilities Ltd

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). They certainly deserve to be on such as they pay good dividends and over the past 10 year have raised their dividends by more than the rate of inflation. I do not own this stock as I already have enough utility type stocks. This is a stock you buy for increasing dividend income and some capital gain.

This stock currently pays a good dividend of 3.2%. The 5 year average dividend is 3%. I remember reading a US study that says the best returns on stocks was achieved by stocks that pay a dividend between 2.5% and 4%. This stock would certainly prove this thesis. Looking at total returns, using closing prices, for the last 5 and 10 year periods, I get returns of 11.3% and 12.4% per year, respectively. When I use average yearly prices in this calculation, I get total returns of 10.3% and 10.9% per year respectively. Within the total returns, the amount generated by dividend is between 3.5% and 4% per year.

We might hit it lucky by buying a stock at its lowest and then sell it at its highest, but this is unlikely. Perhaps the best we can hope for it to buy and sell at rather average prices. If you are holding and valuating stocks on a calendar year, the total returns at the closing price will give you an idea of what to expect of this stock in your portfolio. This stock has a financial year ending at 31 December each year.

The growth in dividend has been very good at 5.8% and 5% for the last 5 and 10 years. The company’s dividend increases have been higher lately then was previously the case. Most other growth figures are good except for revenues, which have not increased much or have gone down. However, in the 2009 report, the president has this to say about revenues, and I quote “Due to the diverse nature of Canadian Utilities’ operations and inclusion in revenues of certain costs that are flow through in nature (particularly natural gas), changes in revenues are not necessarily indicative of changes in earnings.” See the 2009 report to see the rest of his comments.

As I said earlier, this is a good utility stock to own. It has a strong balance sheet, with a current Liquidity Ratio of 2.87 and a 5 year average return on equity of 14.4%. Tomorrow, I will look at what analysts think about purchasing this stock currently.

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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