ATCO Ltd

I do not own this stock (TSX-ACO.X). I have followed this stock for some time. It is a utility stock that has been and is still on the dividend lists that I follow of Dividend Achievers (see resources) and Dividend Aristocrats (see indices). Some consider this stock to be a dividend growth stock.

The dividend has always been quite low with a 5 year median dividend yield of just 2%. The 5 and 10 year growth in dividends is at 6.8% and 8.2% per year, respectively. So dividend is low and the increases are also low to moderate. The exception is the increase for 2012, and this increase is at 14.9%. However, before 2001, especially in the 1990's, dividend increases were higher around 14% per year.

Dividend increases mean a lot for the future income to long term investors. In 15 years' time using current dividend of 1.74% and current 5 year growth of 6.81% would get you a 4.68% return on your original stock purchase. However, if you look at what people are getting who invested in this company 15 years ago, the current yield on your original investment would be 9% to 13%.

The Dividend Payout Ratios are quite good with the 5 year median DPR for earnings at 20.49% and for cash flow at 6.17%. The DPRs for 2011 financial year were comparable at 20.21% and 4.44%. The DPRs for 2012 are expected to be slightly higher at 21.06 and 9.11%. These are all quite low DPRs. Their policy provides decent dividends to shareholders and leaves money for the company to grow.

Total return over the past 5 and 10 years is at 5.54% and 12.27% per year. The portion of this growth attributable to dividends is 1.85% and 2.34% per year over the past 5 and 10 years. Dividends make up 33% and 19% of the total return over these periods. The portion of the total return attributable to capital gain was 3.69% and 9.93% per year over these periods.

The shares outstanding have gone down slightly over the past 5 and 10 years, with the decline at 0.25% and 0.30% per year over the past 5 and 10 years, respectively. Basically the company has purchased back enough shares to cover stock options exercised.

Over the last 5 and 10 years, revenue has grown at 6.9% and 0.6% per year, respectively. Over the last 5 and 10 years revenue per share has grown at the rate of 7.2% and 0.9% per year, respectively.

The Earnings per Share has done quite a bit better with growth at 10.3% and 10.6% per year over the past 5 and 10 years. Cash flow is even better at 15% and 11% per year over the past 5 and 10 years. Even book value per share has grown not badly at 8.8% and 9.4% per year over the past 5 and 10 years.

Last year was a very good year for Return on Equity. The ROE was extremely good at 27.6%. However, the ROE based on comprehensive income was lower by some 18% coming in at 22.7%. Mind you, 22.7% is still a very good number. However, it points to the fact that the net income may not be quite as good as it first looks like.

The 5 year median ROE based on net income is 15.3%. The 5 year median ROE based on comprehensive income is not far off at 14.3%. These are also good values.

The current Liquidity Ratio at 1.33 is rather low and it is much lower than the 5 year median Liquidity Ratio of 2.24. The Liquidity Ratio for the end of the financial year of 2011 was better at 1.62. The current Debt Ratio was also lower at 1.57. The Debt Ratio for the financial year of 2011 was also better at 1.60. The 5 year median Debt Ratio is also higher at 1.74. In the first half of 2012 the company took out $309M of long term debt to finance capital expenditures.

The Leverage Ratio is rather high at 5.76. Although, I must admit that this company has always had a high Leverage Ratio. The 10 year median Leverage Ratio is 5.49. The Debt/Equity Ratio is also high at 3.60. However, other utilities have Debt/Equity Ratios in this range.

Bye and large, this company has done well considering what the economic climate has been over the past few years. It is holding its own and making money for its shareholders. It has a long record of dividend increases. The management obviously expects 2012 to be a good year as it raised its dividend 14.9%. This is a lot higher than the recent years of 7 to 8% increases.

ATCO LTD. is a management holding company with operating subsidiaries in electric and natural gas utility operations, independent power operations, production, storage, processing, gathering, delivery of natural gas, technical facilities management for the industrial, defense and transportation sectors, the manufacture, sale and leasing of industrial shelters and industrial noise abatement technologies. ATCO has just over 50% stake in Canadian Utilities Ltd. The company utilizes a dual share structure of voting and non-voting shares. Its web site is here ATCO. See my spreadsheet at aco.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 or StockTwits.