Friday, June 27, 2014

Algonquin Power & Utilities Corp

I do not own this stock of Algonquin Power & Utilities Corp (TSX-AQN, OTC-AQUNF). This is a dividend paying utility stocks. I got it off a list of dividend paying utility stocks. Also, I own Emera Inc. and this company owns shares in Algonquin Power.

This is another old income trust company which converted to a corporation. On conversion, the dividends were cut 74% (in 2009). Since then the company has been raising dividends again and the most recent raise was in 2013 and the increase was for 9.7%.

At first when the dividends were cut, the company was able to have the Dividend Payout Ratio for EPS below 100%. However, earnings have not been good over the past two years. The DPR for EPS in 2013 was at 464%. They are expected to be at 97% in 2014. Earnings are going in the right direction for the first quarter of 2014. If you look at the 12 month period to the end of March 31, 2014 and the 12 month period to December 31, 2013, EPS is up 86%.

Investors have done much better in total returns over the past 5 years than over the past 10 years. The total return for the last 5 and 10 years is at 19.74% and 3.19% per year. The portion of the total return attributable to dividends is at 5.18% and 5.84% per year. The portion of the total return attributable to capital gain is at 14.56% over the past 5 years and a capital loss of 2.65% per year over the past 10 years.

Good growth after old income trust converted to a corporation was expected as this would lower the high dividend yields to a 4 to 5% range. So it is not surprising that the last 5 years has a good return. However, future returns will be less. I guess the questions is, how much less.

The outstanding shares have increased by 22% and 12% per year over the past 5 and 10 years. The shares have increased due to Share Issues, DRIP, Conversion of Debentures, Stock Options and the Employee Stock Purchase Plan.

The growth in Revenue per Share is fine, but there has not been much growth in EPS or CFPS. Revenue per Share is up 3.7% and 3.5% per year over the past 5 and 10 years. There was an EPS loss exactly 5 years ago. Using the 5 year running averages, EPS growth is down by 2.5% and 7.2% per year over the past 5 and 10 years. The CFPS is down by 5% and 1.9% per year over the past 5 and 10 years.

Since the company has started, the Return on Equity has never been above 10%. In 2013 the ROE was at 2.1% and has a 5 year median value of 4.5%. The ROE for comprehensive income was at 9.8% for 2013. However, the 5 year median value for this ROE is just 1.0%.

The debt ratios are just ok. The Liquidity Ratio for 2013 was 1.25. If you add in cash flow after dividends, it becomes 1.38. The Debt Ratio is consistently been good and the 2013 value is 1.73. The Leverage and Debt/Equity Ratios are 3.64 and 2.10.

The 5 year low, median and high median Price/Earnings Ratios are 23.75, 28.18 and 32.60. These ratios are only up slightly from the corresponding 10 year ratios. The current P/E Ratio is 23.06. This stock price test suggests that the stock price is relatively cheap. However, I think for these are quite high P/E Ratios for a utility. This P/E Ratio of 23.06 uses the stock Price $8.07 and 2014 EPS estimate of $0.35.

I get a current Graham Price of $5.94. The 10 year low, median and high median Price/Graham Price Ratios are 1.26, 1.41 and 12.55. The current P/GP Ratio is 1.36 based on a stock price of $8.07. This stock price test suggests that the stock price is relatively reasonable. However, I also think that these ratios are too high for a utility.

The 10 year Price/Book Value per Share Ratio is 1.49. The current ratio of 1.80 is some 21% higher and this stock price test suggests that the stock price is relatively expensive. In this case, I find the ratios, especially the 10 year P/B Ratio to be rather reasonable. The current ratio is based on a stock price of $8.07 and current BVPS of $4.48.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month consensus stock price if $8.32. This implies a total return of 7.31% with 4.21% from dividends and 3.10% from capital gains. I must say that the Buy rating does not come with much conviction with such a low capital gain in 12 months.

This company is trying to be a dividend growth stock. I think that at present, the stock price is rather expensive. See my spreadsheet at aqn.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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