Tuesday, September 28, 2010

Consumers' Waterheater Inc Fund

I do not own this stock (TSX-CWI.UN). I started to follow it a few years ago because income trusts were are hot investment idea. In the end, I decided that I rather stick with dividend paying stock. However, I did buy a few income trust, the main one being Pembina Pipelines (TSX-PIF.UN). As are most income trust, Consumers will be converting to a corporation by 2011. They have already cut their dividend payouts in half in anticipation of this.

Their cut in dividend is not an uncommon move for stock converting to corporations. All the income trust companies will have to ensure that they distribute a reason percentage of their cash flow. The company had been paying out about 50% of their cash flow. This is a little high. It is anticipated that the dividend payout ratio from CF will decrease to a better ratio of around 30% for this year. Another problem with this stock is that it is not expected to earn much this year and next. Some analyst even think that the company will have loses over the next two years. Others are more hopeful.

In the growth area, this company has done not badly over the past 10 years, but the 5 year figures are not good. I think that being in a recession only partly explains the company’s problems. Also, the one big reason why I did not like income trusts were their lack of ability to grow their book value. This stock was particularly bad in this area. The book value has a negative growth of 14% per year. I can find no year where the book value grew.

The growth in stock price was flat then steadily downward over the past 5 years. Investors would not have made much in total return. Over the last 5 years, what you might have made in distributions was all lost in big capital losses. The company had a habit of increasing their distributions over until 2009 and it will be interesting to see if they will do that again.

The company growth in revenue seems to be the best. The growth in revenue over the last 5 and 10 years is 5.7% and 25% per year, respectively. It is hopeful that they can grow revenue. However, I think they will have to do a better job if their company is to be a good investment. There is an interesting news item on CBC about door to door salesman in the rental Water heaters business. See CBC Canada.

The Liquidity Ratio for this company has recently improved from a dismal 0.16 to a great 2.49. This is because they have been able to get a loan to cover the majority of their current debt. They also got a revolving credit facility. The Asset/Liability Ratio is still quite low at 1.22. I would rather see this at 1.50.

Some people feel this will become an interesting investment in the future and I will continue to track it. Tomorrow, I will talk about what the analysts have to say on this stock.

Consumers' Waterheater Income Fund owns a portfolio of waterheaters and other portfolio assets, which they rent to primarily residential customers. They rent out waterheaters in the GTA and southern Ontario and it is considered a Business Trust. Its web site is here Consumers. See my spreadsheet at cwi.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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