Monday, August 22, 2011

Keyera Corp

I do not own this stock (TSX-KEY). The stock started out as KeySpan Facilities Income Fund (TSX-KEY.UN). Then name was changed in 2004 to Keyera Facilities Income Fund (TSX-JKEY.UN). In 2010 it converted to a corporation and changed its name to Keyera Corp (TSX-KEY). This was one of the stocks recommended by Jennifer Dowty from a column she wrote and I reviewed in February 2010 on Special Dividends paid. See Dividends and Special Dividends.

However, this stock has had only one special dividend which was paid in 2009. This special dividend was 25% of the normal annual dividend. The interesting thing about this stock is that not only did it keep the pre-corporation dividend rate, but it has managed to increase dividends in 2011 by 6.7%.

The Dividend Payout Ratios were a little high over the past 5 years with the one for earnings at 99% and for cash flow at 79%. Both these DPRs are expected to be better in 2011 and 2012. This is indeed good news for the shareholders of this company. The 5 and 7 year dividend growth was 6.3% and 16% per year, respectively. They did not increase the dividends in 2010, but has done well to increase them in 2011.

The current dividend yield is 4.5%, which is a good one. It is lower than the 5 year median dividend yield of 8.3%. However, this is typical as yields for corporations tend to be lower than those for Income Trust companies. It was expected that Income Trust company’s dividends would go to the 4% to 5% range when they became corporations. This has occurred on this stock because of the strong rise in its stock price.

Over the past 5 years the total return on this stock has been around 16.5% with around 7% of this coming from dividends and 9.5% from capital gain. Going forward this should slow down with a lower dividend around 4.5%. The capital will trend towards the increase in dividend rates.

Revenues, Earnings and Cash Flow growth have been good on this stock. For example, the EPS has grown over the past 5 and 7 years at 13.5% and 20% per year, respectively. Since this company only became public in 2003, I only have data going back 7 years.

The place where growth has not been good is for the Book Value. The growth over the past 5 and 7 years has been at 1.5% and 3% per year, respectively. Unfortunately, this typical for Income Trust companies as they tend to pay a lot out in distributions and have low or non-existing Book Value growth.

The Book Value is not improving this year as the 2nd Quarterly report shows a further 11% decrease in Book Value. However, the company has changed the account rules for the 2nd quarter to conform to IFRS rules. If the Book Value had been calculated with these rules for the financial year of 2010, there would be an increase in Book Value, not a decrease in Book Value for the 2nd Quarter.

The current debt ratios on this company are fine. The current Liquidity Ratio is 1.27 which is a little low but ok. However, the 5 year median Liquidity Ratio is very low at 0.85. Hopefully, the change to a corporation will have a good effect on this ratio. The Asset/Liability has been good with a current ratio of 1.57 and a 5 year median ratio of 1.71.

The current Leverage Ratio and Debt/Equity Ratios are also fine. The current Leverage Ratio is 2.77 and the current Debt Equity Ratio is 1.77. These are both higher than the 5 year median ratios of 2.18 and 1.17 respectively.

Tomorrow, I will look at what the analysts are saying about this stock and what my spreadsheet shows about the current stock price.

Keyera provides essential services and products to oil and gas producers in western Canada, and markets related natural gas liquids (NGLs) throughout North America. Its web site is here Keyera. See my spreadsheet at key.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. What an excellent analysis of this stock!

    I really admire the work you put into research these companies.

    I own shares in Keyera Corp within my TFSA. It has been a solid dividend-paying company within my portfolio and I have been fortunate to have earned a 106% gain over the past few years.

    I'm off to check out part 2 of your Keyera series. Great job!