Tuesday, November 25, 2014

Keyera Corp. 2

I do not own this stock of 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.

When I look at insider trading, I find $0.34M of insider buying and $0.38M of insider selling. So there is a bit of net insider selling but very little. This is not much action in insider trading at all. There is some insider ownership with the CEO owing shares worth around $23.9M and an officer having share worth around $14.4M.

Shares are not increased due to stock option, but the Long Term Incentive Plan for employees seems rather high. It affects both the company's earnings and cash flow. Over the past 7 years, the median percentage of earnings is at 13.5%. In 2013, the LTIP was at 19.3% of earnings. However, this is equal to 0.56% of market cap and when shares are issued for stock options, that percentage of market cap is rather normal.

The 5 year low, median and high median Price/Earnings per Share ratios are 18.04, 22.18 and 26.32. The corresponding 10 year values are 16.63, 20.96 and 25.29. The current P/E Ratio is 29.42 based on a stock price of $91.80 and 2014 EPS estimate of $3.12. The 2015 P/E Ratio is 25.36 based on a stock price of $91.80 and 2015 EPS estimate of $3.62. All this suggests is that the current stock price is just above or at the very top end of a reasonable stock price range.

I get a current Graham price of $34.28 and the 10 year low, median and high median Price/Graham Price Ratios are 1.07, 1.34 and 1.62. The current P/GP ratio is 2.68 based on a stock price of $91.80. This stock price test suggests that the stock price is expensive.

The 10 year Price/Book Value per Share ratio is 1.98. The current P/B Ratio is 4.88 based on a stock price of $91.80 and PBPS of $16.74. Book Values on this stock have been increasing at less than 3% per year. This lack of growth in book value or shareholder value affects both this test and the one above. The current P/B Ratio is some 176% of the 10 year ratio. This stock price test suggests that the stock price is expensive.

It was expected that old income trust company's dividend yields would end up in the 4 to 5% range. This stock currently has a rather low yield of 2.8%. This is quite outside this range and the yield is lower than the previous low of 3.9%. This stock price test suggests that the stock price is expensive.

Even looking cash flow, which has had good growth you get the same sort of answer. The 10 year Price/Cash Flow per Share ratio is at 11.20 (and the 5 year median P/CF is not far at 11.83). The current P/CF Ratio at 15.99 is some 43% above the 10 year value. This stock price test suggests that the stock price is expensive.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most of the recommendations are a Buy and the consensus recommendation would be a Buy. The 12 month consensus stock price is $98.50. This implies a total return of 10.11%, with 7.30% from capital gains and 2.81% from dividends.

In early November, Keyera Corp put out the highlights of its third quarterly results over Newswire. A recent article on WKRB talks about CIBC raising their target stock price for Keyera to $103.00. The blogger Dividend Growth Investing and Retirement has this company on his All-Star List.

Sound bit for Twitter and StockTwits is: Getting a bit expensive. Everything I look at suggests that the stock price is too high. Paying too much for a stock you want to hold for the longer term really affects your overall returns on the stock. If you are doing a momentum buy, current price does not matter as much as market sentiment. The stock price trend is certainly going up and this could continue for a while.

In the end dividend growth stocks tend to have capital gains equal to the growth of the dividends. So this stock's total return should equal dividend growth plus dividends. This stock is currently growing faster than that when the increase for 2014 year to date is at 44%. See my spreadsheet at key.htm.

This is the second of two parts. The first part was posted on Monday, November 24, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

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. 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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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