EnCana Corp

First of all, I noted with glee a second day of down markets. Will we get a fall buying period this year. I certainly hope so. However, in retrospect, I think that I missed the boat in July. I did not buy much then and now it seems that it might have been the best buying time for this time of the year.

I have never considered resource companies to be long term holds. I held this company’s stock (TSX-ECA) twice. The first time was from April 2000 to August 2002 and then from February 2006 to November 2009. The first time I held it, I made a return of 18% per year. The second time, I made 9.5% per year. I sold in 2009 because the stock was going to split into 2 stocks. I did not have much invested and I would have ended up with even smaller investments in two separate companies. Today I will deal with EnCana and after that the piece that split off of Cenovus.

First, I should note that this company reports in US$. For all Canadian companies reporting in US$, they have better results in US$ than in CDN$. This is because the CDN currency has risen against the US currency. Except for a short time in late 2008 and early 2009, the CDN dollar has been rising against the US dollar over the past 10 years. The other thing is that the oil side of this business has been split off into a separate company, Cenovus, and I have adjusted the historical data accordingly.

If you look at dividends, they will fluctuate more in CDN$ and in US$ as the dividends are paid in US$. The other thing to note is that dividends in the last 10 years peaked in 2008. According to my spreadsheet, the dividends have increased on average 45% per year over the past 5 years and on average 27% over the past 10 years.

However, buried in this data is some big increase and some big decreases in dividends paid. The other point is that, for this stock, the portion of your total return that is dividend income is only 2% per year, although the total return on this stock is about 17% per year over the past 5 and 10 years. The 5 year average dividend yield is just 1.7%.

Even in CDN$, this company has been doing well over the past 5 and 10 years. I guess the worse growth is in Revenues, which has grown by 16.3% and 9.9% per year, respectively, over the past 5 and 10 years. The best growth has been in Cash Flow and this has grown by 27% and 24% per year respectively, over the past 5 and 10 years.

Although the Liquidity Ratios and the Asset/Liability Ratios have fluctuated, they are currently very good. The Liquidity Ratio is currently at 1.60, but it has a 5 year average of just 1.05. The Asset/Liability Ratio is currently at 2.05, and this ratio has a 5 year average of 1.91. What you want to have is both these ratios at 1.50 or better. The Liquidity Ratios is for current assets and liabilities. When this ratio is at 1.00, it means that the current liabilities equal the current assets. Usually you want something a bit better than that.

This company is one of the dividend lists that I follow of Dividend Aristocrats (see indices). Also, I know that it is on many sample Canadian portfolios for both when people are accumulating wealth and or living off their portfolio’s income. Currently I plan to continue follow this company and the new one of Cenovus.

EnCana is among the largest natural gas companies in North America. They are focused on natural gas exploration and the development of resource plays. They have a diversified portfolio of assets and hold a highly competitive land and resource position in a number of North America's most promising shale and tight gas resource plays. Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2002. EnCana split into EnCana and Cenovus in 2009. Its web site is here EnCana. See my spreadsheet at eca.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.