Wednesday, July 20, 2011

Atlantic Power Corp

First, I got a number of questions in connection with my SNC-Lavalin investment. I will try to answer them in the next few days.

Now, on to the stock that I want to review, Atlantic Power Corp (TSX-ATP) a stock I do not own. This company is into generating electric power. I have a lot invested in pipelines and I would like to have more invested in electric power as my utilities investment. Although I started to investigate this based on a favorable analyst report, I was quite surprised at the fact that that this company cannot seem to earn any money.

According to the company they were covered by Distributable Cash until 2009. My spreadsheet shows that Cash Flow (adjusted for changes in the Balance Sheet) covers distributions in all years but 2009. I just wish they had some earnings. The only year that they had some earnings is 2008.

Although this is a company on the TSX and they pay the distributions or dividends in CDN$, all their assets seem to be in the US and they report in US$. Recently, instead of switching their accounting to the new IFRS standards, they switched to US GAAP standards.

This company is also interesting in that when it started, investors were given a share and a note under an Income Participating Securities (IPS) structure. When they again changed their structure for just shares in 2009, each IPS received one share. Old shares were considered to be worth 44% of new shares. This makes it difficult to value past and present shares.

One good thing has been the dividend yield on this stock. The 5 year median yield is 10.3%. The current yield is 7.2%. Also, total return has been positive. Over the past 5 years, total return has been around 15% per year with 9% of that in distributions. This is a very good return. I just wished they had some earnings.

As far as growth figures go, even in US$, they have not been great. Growth in Revenue in US$ over the past 5 years is 1% and in CDN$ is negative. I think that CDN$ is important, as they do pay out dividends in CDN$. Growth in Cash Flow over the past 5 years is around 2.5%. I do not have any other growth figures as this company has just been around since 2004.

Debt Ratios on this company are not bad at all, especially looking at Assets versus Liabilities. The Liquidity Ratio is currently at 1.64 and it has a 5 year median of 1.93. The Asset/Liability Ratio is currently at 1.76 which is good. The 5 year median ratio at 1.20 is quite low. Leverage Ratio is at 2.46 and the Debt/Equity Ratios is at 1.39. Both are fine. With all these ratios, it does not matter what currency you look at, they are the same.

Of course, the Return on Equity is dismal. This is because there is no net income. The ROE at the end of 2010 is -3.5% and the 5 year median ROE is -3.8%. However, the ROE for the 1st Quarter of 2011 is a respectable if low 7.8%.

I personally would not buy this stock. I would rather be able to sleep at night and not worry about my investments. I think that chasing yield can end in grief. I would personally want to go with a stock with much lower dividend yield that can earn money. I like Fortis (TSX-FTS) or Emera (TSX-EMA) or ATCO Ltd (TSX-ACO) or Canadian Utilities (TSX-CU) much better. It is also the sleeping at night thing that really says it all for me. My electricity utility stocks are Fortis and Emera. Both have been good stocks for me, especially Fortis, which I have owed since 1987.

I also like to invest, not speculate. So, I like companies that are making money. Even my investment in Computer Modelling (TSX-CMG) is an investment. The company is making money and I share in their success in making money by owning a piece of this company.

I have in the past left my portfolio totally alone for 6 months at a time to do other things. I would not worry about doing this is CMG in it. They are making money and have no debt. I worked in IT, so I understand how they make their money. But to me ATP would be different. Analysts look at Free Cash Flow (FCF) to determine if they can afford their distributions. However, to me that sounds like they are mortgaged to the hilt. Any misstep and it all could go south. To me, it all gets back to could you sleep at night with this investment?

The other thing is that this company is rated as a low risk. First, it would not be how I would rate this company. Secondly, low risk can just mean that you are unlikely to lose a lot of money on a stock. It does not say you would make any.

I also know that Dividend Girl has invested in this stock. It will be interesting to see how it all turns out for here. See Dividend Girl.

Atlantic Power Corporation is an independent power producer that owns interests in a diversified fleet of power generation and transmission projects located in the United States. This company has a collection of gas-fired plants in the US and is generally in the lower cost quadrant of generation in its region. ATP owns interests in a diversified portfolio of independent, non-utility power generation projects and one transmission line situated in major U.S. markets. Its web site is here Atlantic Power. See my spreadsheet at atp.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.


  1. Hi Susan! I am reading you while being in vacations in New Brunswick! It’s currently raining – again, but I have a great blog to read! Thanks for the mention, always very kind.

    First, I will like to say that I invested in ATP after reading your blog. You had ATP in a dividend chart of yours. I had too much invested in CDL.A. And CDL.A dividend yield being too low for what I like, I took a look at your charts, pick a few of your stocks having a mention “low”. From all of the stocks I found interesting at that time, I pick ATP.

    I am very surprised to learn that the business has no earnings. How is that possible? Very very strange. I was not aware of this. When I invest, I try to do my best of course, but I don’t go through an analyst like you do of stocks and I should started to at least try to do that. But the problem being also that so far, my gain always exceeded the capital lost, a mix of luck and some knowledge, but not in deep, so doing the way I do for now work for me.

    However, I have been EXTREMELY please with ATP. I bought my stocks at 14.99$ a little while ago. ATP closed today session at more than 15$. The dividend is paid on a monthly basis, with a good yield as you mention. ATP had worked well for me, but I won’t invest more in this one.

    Also, imagine this: ATP announced recently that they will acquire another company that I hold: Capital Power Income LP (CPA.UN)! So where ATP take its money to buy CPA.UN if they have no earnings? Strange, but... If you take a look at ATP chart from its beginning to present, the chart is quite impressive. ATP work for me.

    Also, another thing that I would like to mention is that Ken Hartwick, who's the President and Chief Executive Office of the super fantastic Just Energy Group Inc. (JE) (my favorite of all!!) is also from the Board of Directors of Atlantic Power Corp (ATP)... So this is something that brings in more confident but again, as said, I won’t invest more in ATP. No earnings? It’s a gangster company! LOL. Love it!

  2. I know that you got the ATP off my index list. However, if you had used your cursor to highlight the ATP line, you would have see that under EPS heading there was negative growth.