Waterfurnaces Renewable Energy

The full name of this company is Waterfurnaces Renewable Energy Inc. (TSX-WFI). This is a stock that I follow, but I do not own. It is a utility like stock, but it is more risky that other utility stocks. This is a stock liked by the Investment Reporter investment letter. They think it is a rather risky investment, but it is good stock to buy for capital gains and dividend income.

People who have invested in this company have done very well. This company started to pay dividends in 2003 and the dividends have increase over the past 5 and 7 years at the rate of 11% and 15% per year respectively. The dividend yield is also quite good, with a 5 year average of 3.3%. An investment in this company would have increase over the past 5 and 10 years at the rate of 17% per year and 45% per year, respectively.

The stock price has increased nicely and the amount of dividends that make up this total return would be at the rate of 4.5% and 8% per year over the past 5 and 10 years. I do not think that you will again get the great increase in total returns over the next 10 years as over the past 10 years. However, if you can afford the risk of this stock, you could make a very nice return in stock price and dividends. Please note that this is some currency risk involved. This stock reports in US dollars and the dividends are paid in US dollars.

The increase in book value has not been as good as that in the stock price. Over the past 5 and 10 years, the book value has increased at the rate of 12% per year and 5% per year. Also, the growth in earnings has been much better than the revenue growth. The Revenue growth over the past 5 and 10 years has been at the rate of 14% per year and 11% per year respectively. Compare that to the growth in earnings that has grown by 23% per year and 57% per year, respectively. Cash Flow growth is also very good.

Unlike a lot of utility companies, this company does not have much in the way of debt. The Liquidity Ratio is currently at 4.10 and this company has a 5 year average Liquidity Ratio of 3.03. The Asset/Liability Ratio is also good at a current 2.46 and a 5 year average of 2.39. The Leverage Ratio (Assets/Book Value) is also good at just 1.73. With ratios like these, it means this company could survive a recession quite nicely. And, it has survived the last one quite nicely, with the stock price remaining within a band and paying a good dividend. They even have been increasing their dividends through the last recession. The problem for Canadians is that it may not seem so, because the dividend is paid in US dollars and our dollar has been quite strong against the US dollar.

I guess the last thing to discuss today is the return on equity. The ROE has been very good. The 5 year average ROE is 48%. The ROE for the last 12 month period is at 44%. This is a great figure.

Tomorrow, I will look at what the analysts say about this stock and also what my spreadsheets say about the current stock price.

Waterfurnaces Renewable Energy Inc is a manufacturer and distributor of residential and commercial geothermal and other water source heating and cooling systems. This is an international company with 80% of its revenue from the US. It has revenue from Canada of just over 16% and the rest of the world under 3%. Its web site is here WaterFurnace Inc. See my spreadsheet at wfi.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.