EnCana Corp

I do not own this stock of EnCana Corp (TSX-ECA, NYSE-ECA), but used to. I had held this stock previously as Alberta Energy Company from April 2000 until August 2002 and made some 18% total returns per year. I had EnCana Corp from February 2006 to November 2009 and made a 9.54% per year total return. Of this total return I made some 2.26% per year in dividends.

I have held this stock twice. As you can see I do not look on oil companies as a long term buy. I sold this stock in 2009 because I only had 100 shares and the stock was going to split into two companies. I would have ended up with small investment in two companies. Also, please note that my spreadsheet following this company starts with Alberta Energy Company and follows this company into the formation of EnCana in 2002. It was in 2002 EnCana was formed with the merger of AEC and PanCanadian Energy Corporation.

Because this is an oil and gas company and because they pay decent dividends, the dividends will fluctuate and generally fluctuate because of the price of oil and gas. Since 2007 dividend yields have been trending up as has the company's Dividend Payout Ratios. Dividend yield is currently at 3.8% and the 5 year dividend yield is 2.81%. The 5 year median DPRs for earnings is 32% and for CFPS is 13.5%. Both these ratios are expected to be higher this year with DPRs for earnings at 66% and for CFPS at 16.5%. (Note DPR for earnings was very high in 2011 at 470%.)

Even though dividends have been fluctuating lately, the dividends have grown at the rate of 27% per year over the past 5 and at the rate of 22% over the past 10 years. This seems to be because dividend yields in the past were quite low, but in recent years have been good. The DPRs in the past were also very low.

The outstanding shares have decreased by 1% per year over the past 5 years and increased by 3.7% per year over the past 10 years. Except for new shares issued in 2002 (re merger) the outstanding shares have been decreasing. They are increased due to stock options and decreased due to the company buying back shares.

Growth generally is better in US$ terms (the currency used in the current statements) than in CDN$ terms. Being a Canadian, I am, of course, most interested in growth in CDN$ terms. For example, revenues have increased by 0% and 13.9% per year over the past 5 and 10 years in US$. Revenues have decreased by 2.6% over the past 5 years and they increased by 8.9% over the past 10 years in CDN$.

Revenue per share has decreased by 1.5% per year over the past 5 years and increased by 5% per year over the past 10 years. These values are in CDN$. As far as earnings per share growth there has been none over the past 5 and 10 years. EPS has decline by 46.8% per year over the past 5 and by 14.9% per year over the past 10 years. These figures are also in CDN$. EPS has fluctuated, but there have not been any negative earnings years.

Total return is down over the past 5 years by 4.06% per year. The dividend portion of the return was 3.28% per year. The capital losses were 7.34% per year. The total return over the past 10 years is 9.02% per year. The dividend portion was at 3% per year. The capital gain was at 6.01% per year. Dividends made up some 33% of this 10 year return. These figures are in CDN$.

The cash flow per share growth is good at 9.6% per year and 9.8% per year over the past 5 and 10 years. However, CFPS does fluctuate a lot, but there is no year with a negative cash flow. These figures are in CDN$.

One of the biggest changes for this company recently is that they have changed their accounting rules from C GAAP (2010) to IFRS (2011) to US GAAP (2012). It is hard to see some of the effects of these changes to the statements, but a glaring one is from 2011 to 2012 Book Value per Share has dropped some 66%.

With the company going from Canadian GAAP to IFRS accounting, there was gain in book value per share. However, with the sharp drop in book value in 2012, if you look at growth in book value to date, you get no increase in book value over the past 10 years and a drop in book value of 11% per year over the past 5 years.

Things like this can happen when accounting rules are changed. Unfortunately, accounting rules are changing all the time. However, they are generally not as big as the changes in rules from C GAAP to IFRS. There have always been differences in rules between C GAAP and US GAAP, but you generally do not see such dramatic changes. Under current rules, some Canadian companies can use US GAAP rules and this company has decided to do this. There are pros and cons to any set of rules.

Return on Equity was lousy in 2011 because the company did not make much money. The ROE was just 0.8%. The 5 year median ROE is better at11.2%. The ROE based on comprehensive income was also low for 2011 at 0.4%. The 5 year median ROE is also better at 10.4%.

The Liquidity Ratio was lately been good with the one for the end of 2011 at 1.75 and the current one at 2.07. The 5 year median Liquidity Ratio is just 1.37. However, the cash flow has been strong. The Debt Ratio has generally been good. This ratio for 2011 was 1.93. The current ratio is low at 1.41. The 5 year median ratio is 1.95, a good ratio.

The Leverage and Debt/Equity Ratios are fine with the ones for 2011 at 2.08 and 1.08 respectively. Relatively speaking, the current ratios are a bit high at 3.43 and 2.43. The 5 year median ratios are fine at 2.11 and 1.11.

This is an oil and gas company and as such I believe is riskier than average stock. However, if you can take on the risk, you can make good money on such stocks. Also, when such companies give decent dividends, even if they fluctuate you can make a good income. However, the dividends are more than likely to be cut in bad times (i.e. when recessions hit). If this is a problem for you, you might want to consider stocks without this risk.

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. 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 or StockTwits.