Wednesday, April 6, 2011

AltaGas Ltd

I bought this stock (TSX-ALA) in 2009 and some more in 2010. Since I bought this stock at a very good price, I have made a total return of 38% per year. Probably about 10% of this return is in dividend or distributed income. I wanted to get some gas stock as I feel that we did to get off oil and the most practical way, at the moment, to do this is by switching from oil to gas. It is hard to know when solar power will be practical and wind power may never be practical.

When I bought this stock, it was an income trust. It changed to a corporation in July 2010. At that time, it dropped its dividend by just under 40%. The dividend/income yield dropped from 11.2% to 6.1%. As an income trust, the income was mostly a mixture of Return of Capital and Interest Income. AltaGas’s future distributions will now be in the form of dividends.

The current yield of 5.1% is still a very good yield. However, since the company is now a corporation, they will have to get their payout ratios re earnings and cash flow down before increasing dividends. But the company has said that they do plan to grow their dividends in the future.

When I look at total return on this stock over the past 5 and 10 years, the 5 year figures are really low. I did better because I bought the stock at a low point. The total return over the past 5 and 10 years is 3% per year and 25% per year, respectively. The income portion of this return is 8% per and 10% per year, respectively. The capital gain was -5% and 15% per year, respectively.

Growth in revenue, earnings and cash flow has not been good over the past 5 years. However, the 10 year growth figures are generally good. This company issues shares via a DRIP plan, so the number of shares outstanding is increasing. Shares have been increasing on average at the rate of 8% per year. Revenues have grown over the past 5 and 10 years by -2% and 10% per year, respectively. However, revenue per share has grown by -9% and -2% per year, respectively.

The cash flow has grown over the past 5 and 10 years, by 0% and 8.2% per year, respectively. The best growth is in book value, where the 5 and 10 year growth was 10.8% and 8.5% per year, respectively. The return on Equity is fine for 2010 at 8.4% with a better 5 year running average of 14.5%.

The Liquidity Ratio is a bit low at 0.94. The 5 year median is just 0.92. However, last year ratio was really low and the ratio generally hovers around 1.00. The Asset/Liability Ratio has been much better at 1.79 at the end of 2010 and a 5 year average of 1.83. The Leverage Ratio and the Debt/Equity Ratios are ok, with the Leverage Ratio at 2.27 and the Debt/Equity Ratio at 1.27 at the end of 2010.

I am pleased with my investment and plan to continue to hold on to this stock. I knew when I bought this stock about the plan to lower the income yield. However, I felt the company was a worthwhile investment. I will not be buying any more as I have enough.

The Dividend Ninja has an interesting blog today on High Yield Canadian Stocks.

AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is here Altagas. See my spreadsheet at ala.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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