Friday, March 22, 2013

Atlantic Power Corp

I do not own this stock of Atlantic Power Corp (TSX-ATP, NYSE-AT). Can it be any surprise that this company has cut dividends? Since set up in 2004, they made a profit only in one year, 2008. Every other year there was a loss.

Dividends were dropped 65%. However, I do not think that paying dividends is very wise when there are no earnings. Yes, the Dividend Payout Ratio for cash flow was not that bad with the current one for 2012 at 82%. However, the 5 year median DPR for CF is 90% and for 2011 the DPR for cash flow was 179%. Anyone still feel this company should pay dividends.

I know that people like also look at AFFO and FFO. The DPRs for 2012 for FFO was 100% and for AFFO was 99.6%. The DPR for 2013 for AFFO is expected to be 101% and for 2014 is expected to be 83.5%.

I do not think I can talk about total returns. I usually talk about this to the end of the prior year and in this case it would be 2012. There was not much in capital gain, which was running at just over 1% per year. However, there were good dividends in the 8% to 10% yield range. However, just after the decrease in dividends was announced, the shares fell over 50%.

The company has increased outstanding shares by 14% and 16% per year over the past 5 and 10 years. The increase in shares is due to Stock Options, DRIP and Issuance of new shares.

Growth in revenue was good, with growth at 8.3% and 46% per year over the past 5 and 10 years. However, because of the increase in outstanding shares, Revenue per Share was not so great. The Revenue per Share was done 5% per year over the past 5 years. Revenue per Share was up by 26% per year over the past 10 years.

There has also been some growth in Cash Flow per Share, with CFPS up 2% per year over the past 5 years and up 30% per year over the past 10 years.

When I look at the insider trading report, I find a bit of insider buying of $114,000. The buying was at prices just over $5 per share. There was no insider selling. In any event insiders do not own much. The CEO has $1.5M of shares, and one officer has $0.3M. There is not much in options or options like vehicles. There are some Deferred Share Units and some Notional Shares, but there is not much here either.

When I look at analysts' recommendations, I find Hold and Underperform recommendations. The consensus would be a Hold. I must say I am surprise there is no sell recommendations. The 12 month consensus stock price is $6.89. This implies a total return of 33.52% with 7.33% from dividends and 26.19% from capital gain. But, is this really believable? Analysts expect no profits over the next two years, but they do expect losses to be lower. Also, it is expected that AFFO will drop 44% in 2013 and another 25% in 2014.

People generally buy utilities because they are generally low risk companies. The tradeoff is low risk and a decent return. This is a high risk company. I do not see any possibility of a large return to justify the risk. They cannot earn a profit. Personally I would avoid it totally.

I bought TransCanada Corp in 2000 when they cut their dividend. However, the management had proven that they could make money for their shareholders. They also had a good plan to reorganize the company for the future. So far the only thing that Atlantic Power has shown is that they cannot make a profit.

To get other's point of view, look at Motley Fool. However, they do not have a positive view either and feel that the company is cheap for very good reasons. There is also a comment on this stock by BMO at Benzinga. It is not very positive either. The dividend girl decided to sell her shares in this company.

Atlantic Power Corporation is an independent power producer that owns interests in a diversified fleet of power generation and transmission projects located in the United States. This company has a collection of gas-fired plants in the US and is generally in the lower cost quadrant of generation in its region. ATP owns interests in a diversified portfolio of independent, non-utility power generation projects and one transmission line situated in major U.S. markets. Its web site is here Atlantic Power. See my spreadsheet at atp.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.


  1. This was the #2 holding in CDZ: The S&P Dividend Aristocrats ETF, right to the day they cut the dividend. It's still the #5 holding. After a lot of review and research, I still have no idea why it's in the index. CDZ still has over 5 million shares of ATP and own around 4-5% of the company.

  2. I would only suggest using S&P Dividend Aristocrats to look for possible good stocks. Not all are good stocks.

    There are stocks that increase their dividends, when they cannot afford to, just to stay on this list.

    I never saw anything about Atlantic Power that would entice me to buy it and have no idea why people did like it.