Waterfurnace Renewable Energy Inc

I do not own this stock Waterfurnace Renewable Energy Inc. (TSX-WFI, OTC-WFIFF). I started to follow this stock after it was reviewed Investment Reporter in early 2009. They think that the price is relative high, and it is a risky investment, but it is a buy for capital gains and dividend income.

This company started to pay dividends in 2003. The 5 year median dividend yield is 3.38% and the current dividend yield is 4.83%. There has also been good dividend growth, with the dividend growing over the past 5 and 10 years at 8.67% and 12.84%.

The Dividend Payout Ratios are acceptable also, with the 5 year median DPR at 74% for earnings and 57% for cash flow. The DPR for earnings was over 100% (at 117%) for the financial year of 2012, but sometimes this happens. The DPR for earnings is expected to be around 89% for 2013 and around 74% for 2014.

If you bought this stock today $21.30, and dividend continue to increase at around 8% per year, in 10 years times you could be earnings over 10% on your original investment and over 15% in 15 years times.

The stock has been rising lately and has increased by some 47.5% since the beginning of the year. The total return to date over the past 5 and 10 years is at 2.52% and 20.42% per year. The portion of this return from dividends is at 4.05% and 6.89% per year, with a 5 year loss of 1.52% per year and a 10 year gain of 13.53% per year.

The outstanding shares have grown by less than 1% per year over the past 5 and 10 years. Outstanding shares have increased due to Stock Options and Share Issues and deceased due to Buy Backs. This company has its Head Office in Fort Wayne, Indiana and reports in US$. It has done better in US$ terms than in CDN$ terms over the past 5 and 10 years.

The revenue is up by 3.23% and 4.19% per year over the past 5 and 10 years in CDN$ terms and up by 3.02% and 9.08% per year over the past 5 and 10 years in US$ Terms. The 5 year running averages increases over the past 5 and 10 years is a lot better than the 5 and 10 years increases with the 5 year running average increases over the past 5 and 10 years up by 10.25% and 8.42% per year in CDN$ terms.

In CDN$ terms, the earnings per share is up by 0.7% and 5.27% per year over the past 5 and 10 years. If you use the 5 year running averages, the EPS is up by 15% and 21% per year over the past 5 and 10 years. Difference is because exactly 5 and 10 years ago were good years. For the 10 year growth figures, there is a good increase because there was negative earning years prior to 10 years ago.

The growth in cash flow per share is up by 7% and 6.9% per year over the past 5 and 10 years. If you look at the 5 year running averages, they are much better and very good at 17% and 18% per year over the past 5 and 10 years. I would think over the future years, the growth will be in line more with the 5 and 10 year growth rather than 5 year running averages growth. This is because around 11 years ago the company started to do quite well comparatively to its past.

The 5 year median Return on Equity is 38.8% and the ROE for 2012 is 24.7%. ROE has been quite high in the past from 2001 on. The ROE on comprehensive income is quite close to the ROE on net income.

One thing I quite like about this stock is the very good debt ratios. The current Liquidity Ratio is 4.66 and the Debt Ratio is 2.66. The comparative 5 year median values are 4.25 and 2.47, respectively. The current Leverage and Debt/Equity Ratios are also very good, currently at 1.79 and 0.79.

This is the sort of stock you buy for capital gains and increasing dividends. I agree that it is a rather risky stock because of the nature of its business. However, I think that long term investors will be well rewarded. See my spreadsheet at wfi.htm.

This is the first of two parts. Second part will be posted on Wednesday, October 9, 2013 and will be available here.

WaterFurnace International, Inc. is a leading manufacturer of residential, commercial, industrial and institutional geothermal and water source heat pumps. Products from WaterFurnace include energy-efficient and environmentally friendly geothermal comfort systems, indoor air quality products and pool heaters. Its web site is here WaterFurnace.

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.