Veresen Inc

I own this stock (TSX-VSN). This stock used to be called Fort Chicago (TSX-FCE.UN). It has come through the change to a corporation well. I first bought this stock in December 2008 and then bought some more in March 2009. I have made a return of 49.7% per year on this stock. Probably around 8% per year was in distributions.

This company did not reduce their distributions or dividend payout on conversion to a corporation. Personally, I think that it would have been better if they had. The company does not seem to have any tax pool to pay taxes starting from January 2011. In fact, in the annual statement they say they will have to start to pay taxes from January 2011.

I notice that some analysts are still looking at Adjust Funds from Operations (AFFO) to judge whether dividends are affordable. However, this company is now a corporation and their payout ratios re earnings, expected to be 178% this year and re cash flow, expected to be 72% this year, are high. The payout ratio re earnings is especially high and it would appear no one expects it to be under 100% anytime soon.

This company had modestly increased the dividend payments in the past, but as the payout ratios are high, you cannot expected to have this distributions increased anytime soon. The dividend yield on this company is high at 7.35%. I know that I have made a wonderful return on this stock since I bought it, but this cannot be expected to happen in the near term. I would expect that going forward; capital gains will be modest to non-existent

The only good growth is in total return. Over the past 5 and 10 years, this has grown at the rate of 8% and 12% per year, respectively. The portion due to distributions has been at 8% and 8.5% per year, respectively. The growth in Revenue, Earnings, Distributable Cash and Book Value has not been great, especially over the past 5 years.

Revenue growth has been, over the past 5 and 10 years at the rate of negative 4.6% and 4%. Revenue per share growth has been, over the past 5 and 10 years at negative 8.4% and negative 2%. The thing is that the number of shares has been growing over the past 10 years at a median rate of 3% per year. However, there has been big recent growth, with growth in 2009 at 4% and 2010 at 14%.

Earnings have been growing over the past 5 and 10 years at the rate of negative 1.4% and 3.2% per year, respectively. Even Distributable Cash has not grown well, with growth over the past 5 and 10 years at 2.6% and 6.8%. The problem with distributable cash is that its calculation has changed over the years. Currently AFFO is being used, but this was not always the case.

The book value has not grown over the past 5 and 10 years. Instead, it has gone down by 3.7% and 2.7% per year, respectively, over the past 5 and 10 years. I should note that this is quite typical of unit trust companies. The Book Value did grow by 5.5% in 2010. Generally, corporations do grow book value, but for this company, they pay so much out in distributions, I wonder if the book value on this company will grow.

The last growth to talk about is Cash Flow. The growth over the past 5 years is not good as it 0. I have no growth figures for the last 10 years, because 10 years ago, this company did not have any cash flow that year. However, the 9 year Cash Flow growth is quite good at 12.5%.

Of the debt ratios, the worse is the Liquidity Ratio. This is the ratio for current assets and liabilities. The current ratio is 0.93. This means that the current assets cannot cover current liabilities. If you add in cash flow after dividends, the ratio is 1.17. However, if you add in Cash Flow after dividends and investment, the ratio is 0.73.

The Asset/Liability Ratio is ok. It is at 1.36. Assets can cover liabilities, but I would be happier if it was at 1.50. The Leverage Ratio and the Debt/Equity Ratio are fine at 3.88 and 2.86, respectively. These ratios are typical of a company with pipelines.

I am holding on to my shares at the present time. I will be keeping an eye on them. Tomorrow, I will look at what the analysts say about this stock and what my spreadsheet says about the current price.

Veresen Inc. is a publicly traded dividend paying corporation based in Calgary, Alberta, that owns and operates energy infrastructure assets across North America. Veresen Inc. is engaged in three principal businesses: a pipeline transportation business comprised of interests in two pipeline systems, the Alliance Pipeline and the Alberta Ethane Gathering System; a midstream business which includes ownership interests in a world-class extraction facility near Chicago and other gas processing facilities energy infrastructure; and a power business with renewable and gas-fired facilities and development projects in Canada and the United States, and district energy systems in Ontario and Prince Edward Island. Its web site is here Veresen. See my spreadsheet at vsn.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.