Wednesday, October 12, 2011

EnCana Corp

I do not own this stock (TSX-ECA). As far as EnCana is concerned, I have bought and sold this stock twice. I had bought it in April 2000 and sold it in August 2002. I also bought it in February 2006 and sold in November 2009. I made a total return of 15% per year for the years I held this stock. Some 2% of my return was in dividends. This was a small investment and rather than have two small investments, I chose to sell before the split into Cenovus and EnCana in 2009.

I have never looked on Oil and Gas companies as long term investments. I do not look at any resource stock as a long term investment. However, what I have noticed about oil and gas companies, the companies that pay fluctuating dividends over the long term certainly payout a lot of dividend income.

The Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2001. EnCana split into EnCana and Cenovus in 2009. My spreadsheet is following this company from AEC to EnCana to the EnCana part of this split company. The split was to give Cenovus Energy the oil sections and EnCana to retain the gas sections of the old EnCana. Because of this, my spreadsheet might not actually reflect the past of the current EnCana company.

As far as dividends go, EnCana started off with a very low dividend yield (less than1%). Especially since 2008, dividend payout rates and dividend yields have moved much higher and they have fluctuated. Oil and Gas companies that have high dividend yields and payout ratios tend to have dividends that fluctuate, based on the price of Oil and Gas. The current dividend yield for this stock is quite good at 4%. I do not think that past growth in dividends will have any bearings on future dividend increases.

If you have been invested in the company over the past 5 and 10 years, you would have made money. The total returns for the past 5 and 10 years are around 6% and 14% per year, respectively. The dividend portion of this total return would have been around 2%.

Revenue per share has not grown well over the past 5 and 10 years. Earnings growth has been better for the past 10 year, but not the past 5. The 5 and 10 year growth in EPS is negative and 6.8% per year, respectively. The growth in both Revenues and EPS is better in US$, and this stock is reporting in US$. This company has also always positive earnings and positive cash flow.

The growth in book value has been good, with 5 and 10 year growth in book value at 16% and 12% per year respectively. The return on equity has been fairly good until 2010, when it was just 8.7%. The 5 year median ROE is better at 19%.

The current Liquidity Ratio is low at just 0.65, but this is because there is a current portion of the long term debt in with the current liabilities. However, they have debt facilities in place. The 5 year median Liquidity Ratio is better at 1.03 and this is a more typical Liquidity Ratio for this company. The Asset/Liability Ratio is good at 1.95. Both the Leverage and the Debt/Equity Ratios are fine at 2.05 and 1.05 respectively.

Tomorrow, I will look at what the analysts say about this stock and what my spreadsheet says about the current price.

EnCana is among the largest natural gas companies in North America. They are focused on natural gas exploration and the development of resource plays. They have a diversified portfolio of assets and hold a highly competitive land and resource position in a number of North America's most promising shale and tight gas resource plays. Alberta Energy Company Ltd. (AEC) and PanCanadian Energy Corporation (PanCanadian) companies merged to form EnCana in 2002. EnCana split into EnCana and Cenovus in 2009. Its web site is here EnCana. See my spreadsheet at eca.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 writing about this one Susan. I've always been curious about it. I feel NG will be a great play long-term.

    That said, I'm curious why you've looked O&G companies as long term investments, you didn't go into too much detail about that.

    Can you offer some details on that?

    Keep up the great work on your blog and analyses, I will try and stop by more frequently!