Algonquin Power & Utilities Corp

This morning I purchased some more Ensign Energy Services stock (TSX-ESI) for $16.40 per share. By the time I got a real time quote on ESI after my write-up last week, price was over $17.00. No one can tell the future, but this being May I had a very good chance of getting this stock at I price that I like. The price is even lower now, but I do not care as I got it at a good price.

I do not own this stock of Algonquin Power & Utilities Corp (TSX-AQN, OTC- AQUNF). However, I have shares in Emera Inc. which in turn owns currently some 27% of the outstanding shares of this company.

This stock used to be an income trust, but it has changed to a corporation. The dividend yield has come down because the dividend was cut around 91% in 2009. However, they have been increasing the dividend since then and the last increase was 10.7% in 2012. The current dividend yield is just over 4%.

The problem that I see is that the Dividend Payout Ratios for earnings is over 100%. The DPR for earnings was 130% for 2011, 319% for 2012 and is expected to be around 119% for 2013 if dividends remain the same. The DPR for cash flow is better and the 5 year median DPR for cash flow is 50%.

It was felt that a combination of stock price rising and decreases in dividends would get old income trust dividend yields into the 4 to 5% range and this stock has managed this. Since 2009, the median stock price has risen by 27%. So this has been due to a combination, but most of change is because of falling dividends. Even with the recent dividend increases, the dividends are some 66% below 2009 dividend highs.

The 5 and 10 year total returns are at 0.79% and 5.35% per year, respectively. The Dividend portion of these total returns is at 4.84% and 8.36% per year, respectively. The capital losses are at 4.05% and 3% per year, respectively.

During the past 5 and 10 years, outstanding shares have increased by 21% and 11% per year, respectively. Shares have increased due to Share Issues, DRIP, Conversion of Debentures and stock options. So Revenue has grown at around 15% per year over the past 5 and 10 years, but Revenue per Shares is down by 5% per year over the past 5 years and only up by 3.5% per year over the past 10 years.

Earnings growth is not great either as growth of net income down by 1.5% per year over the past 5 years and up by 3% per year over the past 10 years. Earnings per Shares are down by 22% per year and 11% per year over the past 5 and 10 years.

Cash Flow per Share is not much better as it is down by 18% per year and 5% per year over the past 5 and 10 years. However, for CFPS, the 5 year running averages over the past 5 and 10 years show that CFPS is only down by 9% per year over the past 5 years and even over the past 10 years. (The 5 year running averages are quite different as exact 5 and 10 years ago were, relatively, good years.)

Return on Equity has always been quite low. The ROE for 2012 is just 1.6% for 2012 and the 5 year median is just 4.9%. Companies with consistently low ROEs tend to underperform the market. The ROE on comprehensive income varies a lot from the ROE on net income. For the year of 2012 the ROE on comprehensive income is 30% lower. However, if you look at the last 12 months, which includes the 1st quarterly report of 2013, the ROE on comprehensive income is 68% higher.

Analysts expect Revenue, Earnings and Cash Flow to be up in 2013. If you look at values for the last 12 months, which includes the 1st quarter of 2013, I find Revenue and Earnings to be higher. However cash flow is lower.

The current Liquidity Ratio is just 1.15. The Liquidity Ratio has always been low on this stock and the 5 year median Liquidity Ratio is 1.21. If you add in cash flow after dividends, the Ratio goes to 1.57. A lot of utilities depend on cash for liquidity. The Debt Ratio has always been good with a current value of 1.93. The current Leverage and Debt/Equity Ratios are rather typical for utilities with current Ratios at 3.59 and 1.86, respectively.

I will not be buying this stock. First I own Emera which owns some 27% of the outstanding shares of this company. Secondly, I do not like utilities that have very high DPRs re earnings. A couple of things in favour of this stock are that the earnings have mostly been positive and cash flow has always been positive. See my spreadsheet at aqn.htm.

This is the first of two parts. Second part will be posted tomorrow on Friday and will be here.

APUC owns and operates a diversified portfolio of clean renewable electric generation and sustainable utility distribution businesses in North America. Liberty Water Co., APUC's water utility subsidiary, provides regulated water utility services. Through its wholly owned subsidiary Liberty Energy Utilities Co., APUC provides regulated electricity and natural gas distribution services. Algonquin Power Co., APUC's electric generation subsidiary, includes renewable energy facilities and thermal energy facilities. Its web site is here Algonquin Power.

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.