Thursday, September 29, 2011

ARC Resources Ltd

Markets are historically weak at this time of the year. I would not expect to see any improvement until at least mid-December. If the weakness and volatility of the market bothers you as an investor, you could do what I do and seldom look to see what is happening. The thing is there is nothing you can do about it.

I do not own this stock (TSX-ARX.A). This company was formed in 1996 as an income trust company (TSX-AET.UN). It converted to a corporation in 2011.

The dividends have come down since the conversion to a corporation. But this has more to do with the type of company it is (it is an oil and gas company). If these companies pay a decent dividend, it will fluctuate with the price of oil and gas. If you want a steady dividend from such a company, the dividend yield has to be very low.

The thing is, you can make a lot of income from such a company, but you have to be able to live with the dividend changing. It will also tend to go lower with a recession, as oil and gas prices tend to go lower with recession. On this particular company, the part of the total return attributable to dividends over the past 5 and 10 years is around 8% and 13% per year, respectively. The capital gain portion of the total return for this company over the past 5 and 10 years is 0% and 8%.

Personally, I have very little invested in oil and gas companies at something like 3% of my portfolio. I follow a number of these companies, because the TSX is full of them, but I have not invested much in them. The best growth number on this company is for total return. The problem again is earnings, cash flow, revenue, etc. depends on the price of oil and gas.

On this company, the second best growth figures are for Book Value. Book Value has grown over the past 5 and 10 years at 4.5% and 5.4% per year, respectively. Revenues, earnings, cash flow and dividends have fluctuated and they are currently at or lower than they were 5 and 10 years ago.

Return on Equity also fluctuates and was ok at 8.2% for the financial year ending in 2010. For the past twelve months the ROE is quite good at 12.3%. The 5 year median ROE is very good at 24.4%.

As far as debt ratios go, the only one that is low is for Liquidity which is currently at 0.57. This ratio has a 5 year median of 0.74. The Asset/Liability Ratio has always been good and it is currently at 2.74 and has a 5 year median of 2.37. Both the Leverage Ratio and Debt/Equity Ratio are good. The current Leverage Ratio 1.57 and the 5 year median is 1.69. The current Debt/Equity Ratio is 0.57 and the 5 year median is 0.69.

It all depends on your goals and risk tolerance whether or not this is a suitable stock for you. Some other bloggers have or mentioned this stock. See Wealthy Canadian.

ARC Resources Ltd. is one of Canada's leading conventional oil and gas companies. Its focus is on acquiring and developing long-life oil and gas properties across western Canada. Its web site is here ARC Resources. See my spreadsheet at arx.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. Thanks for the mention Susan, greatly appreciated.

    You're absolutely right in that making the decision to forge forwards with a particular stock often boils down to one's risk tolerance.

    I think it's difficult for the dividend-oriented investor to compare this sector to say the Financial Services sector.

    For the investor who is seeking stable or increasing dividends, companies like SU-T, CNQ-T, and XOM-T can offer such benefits; however, on the other side of the coin to this is the reality of the fact that dividends will not be as juicy. This can affect one's cash flow stream.

    As a result, I have decided to have a basket of stocks within this sector that provide a mixture of both small to mid-cap stocks along with some of the bigger fish in the pond.

    Good stuff Susan.

    Have a great weekend,