Wednesday, November 13, 2013

Keyera Corp

I am putting up on my other blog my notes from the World Money Show 2013 in Toronto. I will put up these notes as I transcribe them here.

I do not own this stock Keyera Corp (TSX-KEY, OTC-KEYUF). I started to review some of the stock recommended by Jennifer Dowty from a column she wrote and I reviewed in February 2010 on Dividends and Special Dividends. The title of the article in Investor's Digest was Dividend Stocks: Buy, Hold and Collect. Jennifer is now a Portfolio Manager for Manulife Asset Management Limited. This stock was also talked about at the recent World Money Show in Toronto. Everyone seemed to love this stock.

The dividend yield is good at 4%. The 5 year and 8 year dividend growth rate was 6.9% and 8.2% per year. The latest dividend increase was in 2013 and it was for 11.1%. If you invested in this company today and its continue dividend growth rate was 6.9%, that would mean that in 10 years' time you could be earning 7.8% on your investment.

This was also an old income trust stock. They did not decrease the dividends on changing to a corporation, but instead kept the dividends level for a year before starting to raise them again. The stock is still paying dividends on a monthly basis.

The Dividend Payout Ratios, especially for earnings is high. The 5 year median DPR is 99% earnings and is 54% for cash flow. For the financial year ending in 2012, the DPR for earnings was 120% and for cash flow was 60%. They are expected to be 110% for earnings and 52% for cash flow in 2013. The third quarterly report is in and the analysts seem to be on track as far as earnings go, but the cash flow growth as not been anywhere near as strong as the estimates suggest.

Shareholders have been making money from this stock. The stock is up some 22% in 2013. To date, the 5 and 10 year total return is 35.46% and 24.06% per year with capital gain portion at 27.7% and 16.96% per year and dividend portion at 7.76% and 7.10% per year. Note that in the future, you should expect the dividend portion of the total return to be lower, probably close to 4% per year.

Outstanding Shares have increased by 4.9% and 18% per year over the past 5 and 10 years. Shares have increased due to Debenture conversions, DRIP and Share Issues. Revenue has increased by 15% and 91% per year over the past 5 and 9 years. Revenue per Share has increased by 9.4% and 62% per year over the past 5 and 9 years.

Earnings growth is a bit different from the revenue growth. Here the best growth has been over the past 5 years, rather than prior to the last 5 years. EPS has grown at the rate of 48% per year over the past 5 years and at 15% per year over the past 9 years. However, if you look at 5 year running averages, the growth over the past 5 years is lower at 24% per year.

Operational Profit Margin (CF/Revenue) Ratio has not done as well as revenue either. This ratio hit a high in 2009 and then dropped strongly for 2010 and 2011. It was up by 17% in 2012. So until 2012, this ratio was going in the wrong direction.

Cash flow has been increasing by 8% and 15% per year over the past 5 and 8 years. However, if you look at the 5 year running average over the past 5 years you get a 5 year increase that is better at 19% per year. This company does have some good growth and the best growth is currently coming from revenue.

The Return on Equity was at 14.7% for the financial year of 2012. The ROE has been above 10% for the past 5 years and this is a good sign. Also, the ROE on comprehensive income is at 14.7% for 2012 and this is also good.

As with a lot of utilities, this company has lots of debt. The current Liquidity Ratio is 1.53. It has in the past been below 1.00 and this is not good as a ratio below 1.00 means that the current assets cannot cover the current liabilities. However, it has been above 1.00 since 2011.

The Debt Ratio is 1.46. It was better in 2012 at 1.50. I would prefer it to be at 1.50. This ratio has been falling since the issue of this stock company. It started off fairly high in 2004 at 2.16, but has been coming down ever since. The current Leverage and Debt/Equity Ratios are 3.19 and 2.19. These are rather high, but are quite typical for utilities.

I can see why people like this stock. It has had very good revenue growth and hopefully that will turn up in very good earnings and cash flow growth in the future. The company has certainly had a very good stock price run up for 2013.

This company is into the infrastructure part of the energy sector. The infrastructure part of the energy sector generally has solid and steady earning and can make good money for their shareholders over time. However, this company has not been around that long and they still have not covered their distributions with their earnings. See my spreadsheet at hse.htm.

This is the first of two parts. Second part will be posted on Thursday, November 14, 2013 and will be available here.

Keyera provides essential services and products to oil and gas producers in western Canada, and markets related natural gas liquids (NGLs) throughout North America. Its web site is here Keyera.

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.

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