Monday, October 3, 2011

Canadian Oil Sands

I plan to cover all the companies in the oil and gas industry that I follow. For the ones that I have not previously made a blog entry this year, I will do so in October. For the rest I have provided links to my blog entries.

Penn West Petroleum (TSX-PWT) Oct 2011
AltaGas Ltd (TSX-ALA), blog dated April 2011, click here or here.
ARC Resources Ltd. (TSX-ARX), blog dated Sept 2011, click here or here.
Canadian Natural Resources (TSX-CNQ), blog dated July 2011, click here or here.

Canadian Oil Sands Trust (TSX-COS) Oct 2011
Cenovus Energy Inc (TSX-CVE) Oct 2011
EnCana Corp (TSX-ECA) Oct 2011
Ensign Energy Services (TSX-ESI) Oct 2011

Husky Energy (TSX-HSE), blog dated Jul 2011, click here or here.
Keyera Corp (TSX-KEY), blog dated Aug 2011, click here or here
Suncor Energy (TSX-SU) Oct 2011

Now, on to the current stock to cover, Canadian Oil Sands (TSX-COS), which I do not own. 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.

This stock has a mixed record of dividend payments. Because a good portion of the cash flow and earnings are paid out in dividends, their dividends will fluctuate with the price of oil. The Dividend Payout Ratio for this stock is at a 5 year median of 101% for Earnings and 74% for cash flow.

However, the DPR for 2011 is expected to be lower at 47% and 27% respectively. DPR for 2011 is expected to be lower at 55% and 33% respectively. Both these rates are quite a bit lower than the 5 year median DPR. This has happened for a number of companies converting from income trusts to corporations. . (See my site for information on Dividend Payout Ratios).

Even so, investor holding this stock over the past 5 and 10 years would have made a lot of money. Dividend income would be around 8% per year. (The dividends have varied and in 2008 this company paid $3.75 in dividends.) Total return over the past 5 years would be from 8% (just dividends) to around 14%. Total return over the past 10 years would have been around 24%. As I have said before on oil and gas companies, you can make a lot in dividend income, if you are willing to put up with fluctuating dividends.

This company has had good growth in revenues over the past 5 and 10 years. The 5 and 10 year growth in Revenue per Share is 10% and 12% per year, respectively. Good growth in earnings, cash flow and book value was only true for the past 10 years. The 5 year growth in these items has been positive, but not great. For example, the 5 and 10 year growth in cash flow has been 2% and 11% per year, respectively.

The Return on Equity has generally been very good on this stock. The ROE for the end of 2011 is 22%, and the 5 year median ROE was 21%. The ROE for the last 12 months ending in June 30, 2011 was 27%.

As far as debt ratios goes, the most volatile is the Liquidity Ratio. At the end of 2010 it was 1.30. For the June 30, 2011 statements it was 2.25. It usually is above 1.00. The Asset/Liability Ratio has been very good. The current one is 2.23 and it has a 5 year median ratio of 2.33. Both the Leverage and Debt/Equity Ratio are good, with current ratios at 1.81 and 0.81 respectively.

This stock has provided good returns for investors in the past. However, since it is in the oil industry, I think it is high risk, but other might disagree. Your return, especially dividend income highly depends on the price of oil.

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.

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