AltaGas Ltd 2

I own this stock (TSX-ALA). I first bought this stock in May 2009 and then bought more in November 2009 and in June 2010. I have made a return of 36.5% per year. Dividends count for 8.8% per year of my return or 24% of my return. My capital gain return is 27.7% per year.

When I look at insider trading, I find insider selling of $1.7M and minimal insider buying with net insider selling of $1.6M. The insider selling looks like officers are cashing in options. This company also has more than just the standard options with Rights Performance Units, Rights Restricted Units and Subscription Rights.

The CEO has a substantial investment with shares own worth just under $38M. One of the directors has a similar investment in the company. The CFO and the officers of the company have more options than shares. Most of the directors do too, with some exceptions.

There are some 68 institutions that own around 34% of this company. They have bought and sold shares over the past 3 months with a net of sellers, but overall institutions have increased their holdings in the company very marginally.

I get 5 year median low and high Price/Earnings Ratios of 12.74 and 15.21. The current P/E ratio of 24.09 is showing a rather high stock price at $30.35. This stock is at basic a utility; so a P/E ratio of 24 is high.

I get a Graham Price of $19.22 and the current stock price is some 58% higher than the Graham Price. The 10 year median low difference between the stock price and Graham price is the stock price being 8% lower than the Graham Price. The 10 year median high difference between the stock price and Graham price is the stock price being 43% higher than the Graham Price. A difference of 58% does point to a high current stock price.

As far as the dividend yield goes, we do not learn too much. The 5 year median dividend yield is 9% and the current one is 4.6% and suggests a high stock price. However, this company used to be an income trust company and those companies had higher dividend yields than corporations.

This company cut is dividend when switching to a corporation. In a corporate model you do not expect as high dividend yields as the income trusts produced. It was expected the dividend yields on income trusts that switched to corporations would lower their dividends yields to 4 to 5% and this is the range for this company.

The 10 year median Price/Book Value Ratio is 2.50 and the current one is 2.33. This is the only test that shows a reasonable stock price.

When I look at analysts’ recommendations, I get Strong Buy, Buy, Hold and Underperform. The consensus recommendation would be a Buy. Most recommendations are Strong Buy and Buy and there are very few others.

A couple of Strong Buy analysts said that they like that AltaGas were buying SEMCO because of this company’s Natural Gas Distribution and Natural Gas Storage Utilities in Alaska and Michigan. See article on Market Wire.

Two Strong Buy analysts gave a 12 months stock price of $36.00. On expects strong growth in dividends over the next 5 and 10 years at around 10% per year. Some analysts like the current dividend yield.

A lot of utility stocks are overpriced because of investors who usually get interest income are looking for income from stocks now. This stock still has a good yield. But, however you look at the P/E Ratio, one of 24 is rather high for a utility stock.

I do not sell a stock simply because it is overpriced as the market overprices and underprices stocks all the time. I will not buy any more of this stock as it is 2.4% of my portfolio. It is at 2.4% of my portfolio because it has grown so well. Usually after such a growth spurt a stock slows down. Analysts do not think this will happen to this stock, but I personally would not be buying at this time.

Going forward, I would expect a dividend yield between 4 and 5% and capital gain closer to 8% than to what I have receiving on this stock.

Blogger Alberta Venture writes of AltaGas on March 12, 2012 on his site.

AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is here AltaGas. See my spreadsheet at ala.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.