ATCO Ltd

I do not own this stock (TSX-ACO.X). However, it is a well-respected utility company. This company would be considered to be a dividend growth company. They are on one of the dividend lists that I follow of Dividend Aristocrats (see indices).

The dividend yield is rather low with a 5 year median dividend yield of just 2% and a current dividend yield even lower at 1.8%. Although the latest dividend increase was 7.5%, the dividend has grown over the past 5 years at around 6.8%. If bought today at the same rate of increase your dividends on cost would be around 3.5% in 10 years’ time.

This stock has rather low Dividend Payout Ratios. The 5 year median DPR on earning is just 21% and the 5 year DPR on Cash Flow is just 6.5%. The current DPR is currently around these same values. (See my site for information Dividend Payout Ratios). The Earnings per share (EPS) has been growing quite nicely lately with the 5 and 10 year growth in EPS at 15% and 10% per year, respectively.

Unfortunately, the cash flow has been growing slower with the 5 and 10 year growth rate at 5.5% and 6.3% per year respectively. The Revenue per Share has also been growing rather slowly lately with the 5 and 10 year growth rate at 4.5% and just 1.4% per year, respectively. Because they pay out a rather low percentage of the cash flow, there will be no trouble paying the dividend, nor increasing it over the next few years.

However, over the long term I would like to see better revenue growth. I might add there was a turnaround in revenue in 2010 with revenue growing a healthy 11%. Unfortunately, cash flow per share did not grow last year.

There are other good things to mentions, and one is the Book Value has increased over the past 5 and 10 years at 11.5% and 10.7% per year, respectively. The other thing is the Return on Equity. This has always been quite good. The 5 year median ROE is 14.5% and the one for the end of 2010 is 13.2%.

One good thing about this company is their assets cover their liabilities quite well. The Liquidity Ratio is currently at 1.96 and the Asset/Liability Ratio is at 1.72. Both these ratios are very good. Most utility companies have lots of debt and this company is no exception. The other two debt ratios that I follow of Leverage and Debt/Equity are a bit high, even for a utility company. At the end of the last quarterly report they were 5.00 and 2.90. They heavily finance their assets through debt rather than equity.

This is a well-managed company and its latest press release shows that it has a very good 2nd quarter. Tomorrow, I will look at what my spreadsheet ratios say about the current price and what analysts have to say about this stock.

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.