Tuesday, October 4, 2011

Canadian Oil Sands 2

I notice that the Globe and Mail has said today that we are in a bear market. I thought we had been in a bear market since April, but what do I know.

I do not own this stock (TSX-COS). This stock also comes from an income trust and it switch to a corporation in 2010. At that time it declared a 60% decrease in dividends and the stock fell, but later revived. They again started to raise dividends for the May dividend payment.

The insider trading report shows that there has been $3.2M of insider selling with a net of insider selling at $2.7M. The selling was mostly at the top of the market for this year. (It seemed to mostly the selling of options by officers of the company.) There are 196 institutions that hold some 31% of the outstanding shares. Over the past 3 months they have sold 6.5% of their holdings.

Price/Earnings Ratio can vary a lot, but the 5 year low median P/E Ratio is 14.83 and the 5 year median P/E Ratio is 21.15. However, the 10 year median P/E Ratios are lower at 9.26 and 16.19, respectively. The current one at 8.17 is on the low side and suggests a good current stock price at $19.21.

I get a Graham Price of $21.30 and the current stock price of $19.21 is some 9.8% lower. The 10 year average low difference between the Graham Price and stock price is the stock price being 11% lower. By this measure, the stock price is good. However, both the current P/E and Graham Price use the EPS estimate for 2011.

I get a 10 year Price/Book Value Ratio of 2.98 and a current one of 2.24. The current one is 75% of the 10 year median ratio and anything less than 80% is pointing to a good stock price. I get a 5 year median dividend yield of 5.16%. The current yield is 6.25% and this also point to a good current stock price. Also, the 10 year median high dividend yield is 5.82% and the current yield also beats this. Both these test point to a current low stock price. Neither of these tests uses estimates.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold and Underperform. (See my site for information on analyst ratings.) The consensus would be a Hold. There are lots of Hold recommendations.

There are problems or a controversy over our oil sands. Americans call it dirty oil. A number of analysts are worried about this and give this stock a hold. One analyst mentions this also, but gives this stock a buy, but a long term buy. See an article in the National Geographic on this subject. For a review of the bad things said about our oil sands, see a paper by George Winter.

The main reason that the company cut the dividend was to pay for a big capital investment program. A number of analysts felt this was a positive move. The market only punished this stock for the dividend decrease for a short period of time.

A lot of influential people in the US, like to US President, try to sidestep the oil sands controversy. I think the problem for the Americans is that they need our oil. The Americans are a lot of things, but they are not stupid. I cannot think they will refuse our oil.

This stock, like Arc Resources, has fluctuating dividends. This is common to all stocks in the oil and gas industry that pay a decent level of dividends. Over the long term, you can make good income, but it will fluctuate and will probably be decreased when we have recessions. This stock would be considered to be risky for a dividend paying stock. However, if you can stand the dividend fluctuations, you can make good income from such stocks.

Another blogger also talks about this stock at Wealthy Canadian. This stock has also been mentioned a number of time by the Dividend Ninja. See blogs on Income Trust and Income Trust Countdown. Also, see blog entry on Dividend Payout Ratios.

Canadian Oil Sands Trust provides a pure investment opportunity in the oil sands through its 36.74% interest in the Syncrude Project. Syncrude is an experienced oil sands operator, producing a high-quality crude oil for the past 30 years. With large, bitumen-rich leases located in the sweet spot of the Athabasca oil sands deposit and a fully integrated upgrading facility that produces 100% light, sweet crude oil, the quality of their Syncrude asset is very good. Its web site is here Canadian Oil Sands. See my spreadsheet at cos.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. Hi Susan,

    First off,thanks for the mention.

    You're absolutely right in that COS-T falls in line with many of the small to mid-cap Oil & Gas stocks that don't offer the investor a consistent dividend steam. As you mentioned, we see fluctuations, especially during recessions and depressed prices in oil.

    I noticed that this is indeed what happened to my position in COS during the financial crisis and I've been anticipating share price appreciation ever since. Because I'm in it for the long-haul, I'll be keeping the stock for quite some time.

    With that being said, I think this sector can be a little trickier to invest in. Over the past months, I've mixed things up by adding large-cap players to the basket of stocks I own in this sector, such as CNQ-T, SU-T, and XOM-N. It will add some stability and consistency in dividends, despite the lower yields.

    Great post Susan - keep up the great work. Your blog is a real gem.

    All the best,