EnerCare Inc.

I do not own this stock of EnerCare Inc. (TSX-ECI, OTC-CSUWF). I started to follow this stock in 2009 when it was an income trust. This was one of a few income trusts that I followed because it was recommended by MPL communications.

This was an old income trust that reduced their dividends or distributions when changing to a corporation. The dividends were reduced by 49.8% in 2009. They obviously did not lower them enough. In 2012 they began raising their dividends again. The most recent increase was for 4.1% in 2014. They pay a good dividend which is currently at 5.31%.

A number of analysts think that the dividend is safe as it is supported by cash flow. The Dividend Payout Ratios for CFPS is at 37% for 2013 and the 5 year median DPR for CFPS is at 36%. The problem that I see is that the dividend is not supported by profits. The DPR for EPS for 2013 was 546%. It is expected to move to 153% in 2014, but not to a value lower than 100% in the next few years. This increase could be due to the fact that someone wants to buy out this company.

Shareholders have done well lately as this stock is up by almost 37% this year. The 5 and 10 year total return to date is at 37.45% and 5.56% over the past 5 and 10 years. The portion of this total return attributable to dividends is at 10.73% and 6.67% per year over these periods. The portion of this total return attributable to capital gains or loss is at 26.63% per year gain and 1.11% per year loss over these periods. Note that in future dividend returns will be much lower.

The outstanding shares have increased by 3.4% and 1.7% per year over the past 5 and 10 years. Shares have increased due to Share Issues and Debenture Conversions. Generally revenues are up, Earnings are going not where and cash flow is falling.

Revenue is up by 10.6% and 8.1% per year over the past 5 and 10 years. Revenue per Share is up by 7% and 6.3% per year over the past 5 and 10 years. EPS is down by 17.6% over the past 5 years. There is no fix on 10 years' EPS growth as 10 years ago was an earnings loss year. Last year had an earnings loss. However Analysts do expect EPS to start to rise over the next few years. CFPS is down by 7.4% and 1.2% per year over the past 5 and 10 years. Here also, analysts expect CFPS to start rising again.

The Return on Equity was just above 10% 4 times in the past 10 years and only twice in the past 5 years. The ROE for 2013 is 12.4% and the 5 year median is just 3.2%. The ROE on Comprehensive Income is higher with the 2013 ROE at 18.2% and the 5 year median at 6.2%. This is a positive sign.

I do not like the debt ratios. The Liquidity Ratio for 2013 is 1.30 and then rises to 2.79 when cash flow less dividends is taken into account. The Debt Ratio is also low at 1.10. The Leverage and Debt/Equity Ratios are very high at 10.92 and 9.92.

The 5 and 10 year median Price/Earnings per Share Ratios are 60.37 and 38.31. These are why too high for this sort of company. The current P/E Ratio is 29.02 and this is still very high for this sort of company. I get a Graham Price of $3.52 and the current P/GP is 3.88 and value much too high for this sort of company.

The 10 year Price/Book Value per Share at 2.70 is also high, but the current P/B Ratio at 11.67 is some 332% higher. The 10 year Price/CFPS is 4.82 is fine, but the current one of 6.40 is some 32.8% higher and suggests that the current price is way too high.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $14.30. This implies a total return of $10.15% with 5.31% from dividends and 4.84% from capital gains.

There is an interest Financial Post article about this company and a New York Hedge fund investor. The New York Hedge fund invested in this stock want to buy the EnerCare Inc. outright. In this article another large shareholder questions if the board is looking after the interest of its shareholders.

Sound bit for Twitter and StockTwits is: Dividend growth company, but price too high. I would not buy this company. I do not like the Dividend Payout Ratios for EPS, the low ROEs and debt ratios. See my spreadsheet at eci.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.

EnerCare Inc. owns a portfolio of waterheaters and other portfolio assets, which they rent to primarily residential customers. They rent out waterheaters in the GTA and southern Ontario. EnerCare also owns EnerCare Connections Inc., a leading sub-metering company, with metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada. Its web site is here EnerCare Inc.

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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