Wednesday, August 3, 2011

ATCO Ltd 2

I do not own this stock (TSX-ACO.X). This would be the sort of stock to buy for dividend income and capital gain. You should also be interested in the dividend growth, as this is what will push up the long term capital gain. The 5 and 10 year dividend growth rate is 6.8% and 8.7%. The 5 and 10 year growth in the stock price is 8.2% and 9.8% per year, respectively. Your total return would be stock price growth, plus dividends. For this stock, dividends would add about 2% per year.

Since the growth in stock price over the past 5 and 10 years is higher than the growth in dividends, this would suggest that the current stock price is currently a bit high and this is shown by a rather high P/E ratios and low dividend yield. In theory, the market prices a stock based on future expectations, and not what has happened in the past.

The 5 year medina Price/Earnings Ratios has a low of 8.94 and a high of 12.05. The current P/E Ratio of 11.62 would be towards the high side. I get a Graham Price of 65.42 and the current stock price of $62.30 is 5% lower. However, for this stock, the stock price is usually lower than the Graham Price. Over the past 10 years this stock’s high price, usually been below the Graham Price by 5.79%. Both these items would suggest that the stock price is towards a high price.

The 10 year median Price/Book Value Ratio is 1.47 and the current P/B Ratio is 1.76. That would mean that the current ratio is some 20% higher than the 10 year median ratio and this also suggests a high current stock price. The last thing to look at is dividend yield. The current yield is 1.83 and the 5 year median yield is 2.01. This too suggests a rather high current stock price.

When I look at insider trading, what I find is insider selling at $1.2M and no insider buying. The insider selling is all by officers of the company and this was all done last year. The other thing to note is that the company is buying back non-voting shares (TSX-ACO.X). Also, 57 institutions own some 25% of this company. There has been both buying and selling over the past 3 months. There has been a net decreased in institutional holdings of 3.4% over this period.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold recommendations. However, there are very few analysts following this stock. The Buy recommendation comes with a 12 month stock price of $69.50 which is an 11.6% increase and with dividend would be a total return of 13.4% over the next year. The Strong Buy comes with a 12 months stock price of $75. This would be a 20.4% increase and with dividends would work out to a total return of 22.2% over the next year.

The consensus recommendation on this stock is a Buy. One analyst said that the company should have strong earnings over the next few years in a low-risk regulated environment. Another said it is a diversified performer with a compatible set of businesses. This company has a very good record of increasing its dividends each year. An analyst remarked that the company gets most of its earnings from Canadian Utilities (TSX-CU).

There is an Wikipedia entry for this company. There is an article about this company in the Calgary Herald. The blogger GypsyTown had an entry on his blog about this company. Another blogger talks about the recent Australian purchase of Western Australia Gas Networks by ATCO.

ATCO LTD. is a management holding company with operating subsidiaries in electric and natural gas utility operations, independent power operations, production, storage, processing, gathering, delivery of natural gas, technical facilities management for the industrial, defense and transportation sectors, the manufacture, sale and leasing of industrial shelters and industrial noise abatement technologies. ATCO has just over a 50% stake in Canadian Utilities Ltd. The company utilizes a dual share structure of voting (ACO.Y) and non-voting shares (ACO.X). Its web site is here ATCO. See my spreadsheet at aco.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 comment:

  1. Nice review. I was curious about this one. Thanks for this. I'll stay tuned to part 2.