Wednesday, August 29, 2012

Canadian Utilities Ltd 2

On my other blog I am today writing about what to read for novice investors. I think that if you want to learn about investing today I would suggest reading some blogs rather than any particular book. One of my favourite investment bloggers is the Loonie Bin Blog continue...

I do not own this stock Canadian Utilities Ltd.(TSX-CU). I started to follow this stock as it was on a number of dividend lists. It was on and still is some dividend lists of Dividend Achievers (see resources) and Dividend Aristocrats (see indices).

Insider trading shows that there was $1.37M of insider buying and $1.35M of insider selling, so there was a very small net of insider buying. Everyone, but directors have lots more options or rights than shares. This includes Subsidiary Executives. There are some directors with shares worth in the millions, and the CEO has shares worth around $6.6M. However, insiders do not own a substantial amount of the outstanding shares. ATCO Ltd (TSX-ACO.X, ACO.Y) owns around 53% of the outstanding shares.

There is not a large investment by institutions into this stock. There are some 5 institutions that own around 5% of the outstanding shares. Over the past 3 months they have marginally decreased their share ownership. This change is small so it tells us nothing.

The 5 year low, median and high median Price/Earnings Ratios are 12.25, 14.02 and 15.79. The current P/E Ratio is 17.11 on a stock price of $69.29 and an EPS value of $4.05 for 2012. The high P/E ratio suggests that the current stock price is relatively high.

I get a Graham Price of $48.04. The 10 year low, median and high median Price/Graham Price Ratios are 0.91, 1.07 and 1.23. The current P/GP Ratio is 1.44 on a stock price of $69.29. This high P/GP Ratios suggests that the stock price is relatively high.

I get a 10 year median Price/Book Value Ratio of 1.99. The current P/B Ratio is 3.64, which is some 37% higher. This high current P/B Ratio suggests a relatively high current stock price.

I get a 5 year median dividend yield of 3.12%. The current dividend yield is 2.55% and is some 18% lower. This lower dividend yield would also suggest a rather high current stock price.

When I look at analysts' recommendations, I find Strong Buy, Buy, and Hold recommendations. The consensus recommendation would be a Buy. (Most of the time this is what you find under analysts' recommendations and it tell you nothing.) My spreadsheet suggests that this stock is overpriced.

One analyst with a Hold recommendation mentioned that the company in Q2 of 2012 missed their EPS estimates. Another analyst says that people continue to use electricity come rain or shine, so investors are happy to accept relatively low, very safe yields. This company fits into this category.

Another analyst said this company's P/E is lower compared to other utility stock. He also liked its potential for raising its dividends. It is expect to raise the dividends at least 9% per year over the coming few years.

The consensus 12 months stock price is $74.10. This implies a 12 month total stock return of 9.5%, with 2.6% from dividends and 6.9% from capital gain.

I think this stock is overpriced, but all utility stock seems to be overpriced currently. It is not wildly overpriced, but a P/E of 17 is rather high for a utility stock. Certainly an ability to give nice dividend raises over the new few years is a positive.

Canadian Utilities Limited operates in four business segments: regulated natural gas operations; regulated electric operations; technologies; and power generation. These operations provide service to industrial, residential and commercial customers. Other businesses consist of natural gas gathering, processing, storage and natural gas supply management and technical facilities management. ATCO (ACO.X) owns just over 50% of this company. CU.X is voting and Class B, CU is non-voting and Class A. Its web site is here Canadian Utilities. See my spreadsheet at cu.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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