Thursday, August 4, 2011

Canadian Utilities Ltd

I do not own this stock (TSX-CU). You would not want to own this company and ATCO because of their close relationship. This is another utility company and it is considered to be well-managed. The Dividends, at 3% on this stock is higher than on ATCO that has a current dividend at 1.8%. The Dividend Payout Ratios (DPR) is higher on this stock at 41% of earnings and 23% of cash flow. However, these are still good DPRs.

Dividend increases have been good. The 5 and 10 year growth in dividends runs at 6.5% and 5.3% per year respectively. The most recent dividend was a bit higher at 6.6%. Total return over the past 5 and 10 years was at 8% and 11.5% per year, respectively. Of this total return, dividends account for just over 3% of return.

From past performance you can probably expect a 3% dividend and a 6.5% capital gain, for a total average annual return of 9.5%. What you generally look for in a utility stock is 4% dividends and 4% capital gain. For this stock you get a bit less in dividends and a bit more in capital gain. On dividend growth stock, you expect that, over the long term, dividend increases will drive the stock price.

The Earnings per Share are not bad for this utility running at 10.7% and 6.8% per year, over the past 5 and 10 years. Earnings have been growing over the past few years. What hasn’t been growing is Revenue and Cash Flow. The worst of these is revenues per share and over the past 5 and 10 years this has grown at 1.3% and 0% per year. A good thing to point out is that the 1st Quarterly revenue for 2011 is up some 6.6% from the 1st Quarter of 2010.

Cash Flow per share has been a bit better, growing over the past 5 and 10 years at 2.4% and 4.2% per year respectively. Analysts seem to expect better growth for 2011 and 2012 with growth at 11.8% for 2011 and 8.9% for 2012. Book Value is growing nicely at 8% per year over the past 5 and 10 years. Return on Equity has always been good and this stock has a 5 year median ROE of 14.6%.

When looking at debt ratios involving assets and liabilities, these ratios have always been quite good. The Liquidity Ratio is current at 1.90 and has a 5 year median rate of 2.83. The Asset/Liability Ratio is currently at 1.68 and has a 5 year median of 1.75.

The other debt ratios of Leverage and Asset/Equity are high, but better than for ATCO. The current ones are 3.16 for the Leverage Ratio and 1.88 for the Asset/Equity Ratio. Utility companies tend to have a lot of debt compared with equity. See my site for further information on Debt Ratios. )

When buying dividend growth stock there is a trade off in between dividend yield and dividend increases. Generally speaking, the higher the yield the lower the dividend increases. This can show up in what is called “yield on cost”. That is if you bought the stock today, what would your yield be on today’s stock price in 10 or 15 years’ time? For this stock, the YOC would be 5% and 6.5% in 10 and 15 years’ time if dividend increases were 5.5% per year.

Canadian Utilities Limited operates in four business segments: regulated natural gas operations; regulated electric operations; technologies; and power generation. These operations provide service to industrial, residential and commercial customers. Other businesses consist of natural gas gathering, processing, storage and natural gas supply management and technical facilities management. CU.X is voting and Class B, CU is non-voting and Class A. Its web site is here CU. See my spreadsheet at cu.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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