Monday, June 11, 2012

Veresen Inc

What stock to review next? See comments blog. The next new stock for me to cover will be Le Chateau (TSX-CTU.A). This will occur next Tuesday, June 19, 2012.

I own Veresen Inc. (TSX-VSN) stock. I first bought this stock in December 2008 and then some more in March 2009. I got it at a good price and have made a return of 33.3% per year. Some 13.2% of this total return is in dividends and some 20.1% of this return is in capital gains.

The 5 and 10 year total return is not as good coming in at 13.9 and 13% per year, respectively. Some 7.8% of this return is for dividends and is 56% and 60% of the total return over the past 5 and 10 years. Capital gain over the past 5 and 10 years are at 6.1% and 5.2% per year.

Dividends are good and are currently running at just over 8%. However, dividends have not been increased since 2008. They will probably not be increased anytime soon as the Dividend Payout Ratio, especially for earnings, is very high. The 5 year median is 217% and the DPR for earnings for 2012 is expected to be around 232%. The 5 year median DPR for cash flow is better, running at 62% for a 5 year median, but is expected to be around 71% for 2012.

Analysts do not see any changes happening to the dividend over the next year. In fact one analyst gives the dividends from now to 2014 as the same as the current one. Analysts are still looking at Adjusted Funds from Operations (AFFO) as the basis for determining if dividends can be paid by the company. The DPR for AFFO is expected to be 85.5% for 2012. The 5 year median DPR for AFFO is at 83%. This DPR is expected to be back to 83% in 2013 and then start to trend lower.

When looking at growth for this company, the only good one is the 10 year growth in cash flow, which is at 11.6%. All the rest, especially the per share ones, are generally not good at all. The Revenue growth per share is down 2% and 1% over the past 5 and 10 years. Earnings per Share are down 11% per year over the past 5 years. However, earnings are up some 5.6% per year over the past 10 years. Over the past 5 and 10 years, Book Value per share is down 3.8% and 2.6% per year, respectively.

This Canadian company will not be preparing statements according to new IFRS rules. Instead they will switch their accounting rules to US GAAP.

The company has recently strengthened its balance sheet. Part of this had to do with the new US GAAP accounting rules, but only a very small part. Their current Liquidity Ratio is 2.86 where the 5 year median Liquidity ratio is very low at 0.67. Their Debt Ratio is currently at 1.86 and the 5 year median Debt Ratio is 1.34. The balance sheet was strengthened with the annual statements for 2011, but now is even much better with the 1st quarterly report of 2012. This is about all the good news there is.

The Return on Equity is low at 6.4%. This stock has a slightly better 5 year median ROE of 9.5%. The ROE based on comprehensive income confirms this ROE based on net income. ROE on comprehensive income is at 8.5% for the end of 2011. The 5year median is a bit lower on comprehensive income at 8.5%.

I am retaining what I have in this stock. The stock dividend is currently very good at 8%. I do not expect I would want any more of this stock until the earnings start to grow so that dividend increases are something that could be contemplated down the road. I do not expect this to happen anytime soon.

Veresen Inc. is a publicly traded dividend paying corporation based in Calgary, Alberta, that owns and operates energy infrastructure assets across North America. Veresen Inc. is engaged in three principal businesses: a pipeline transportation business comprised of interests in two pipeline systems, the Alliance Pipeline and the Alberta Ethane Gathering System; a midstream business which includes ownership interests in a world-class extraction facility near Chicago and other gas processing facilities energy infrastructure; and a power business with renewable and gas-fired facilities and development projects in Canada and the United States, and district energy systems in Ontario and Prince Edward Island. Its web site is here Veresen. See my spreadsheet at vsn.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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