Northland Power Inc.

On my other blog I am today writing about handling my registered accounts.

I do not own this stock of Northland Power Inc. (TSX-NPI, OTC-NPIFF). This company is into generating electric power. I have a lot invested in pipelines and I would like to have more invested in electric power as my utilities investment. I read a report on this stock that said it was a good defensive stock to buy. That is, it is a good stock to hold in a stock market correction. I can certainly see the logic of using utility stocks as defensive stocks.

This is another company that used to be an income trust. It had a spotty record of dividend increases before 2008 and the dividend has been flat since then. They are still paying dividends monthly. No analyst seems to expect any dividend increase any time soon.

Part of the problem is that the company is having a hard time making a profit. It had two years of earnings losses in the last 5 years and 2014 it is also expected to have an earnings loss. The third quarterly report points this way as well. As well no analyst seems to expect the dividends to be covered by earnings in 2015 and 2016. On the other hand no one seems to think that dividends will be cut either.

The story is happier if looking at cash flow. The Dividend Payout Ratio for CFPS has a 5 year median of 91%. However, the DPR for CFPS for 2013 was 54% and the corresponding ones for 2014 to 2016 are 70%, 62% and 58%, respectively.

Shareholders have done well over the past 5 and 10 years with total returns at 15.65% and 9.09% per year over the past 5 and 10 years. The portion of this total return attributable to dividends is at 7.92% and 7.03% per year. The portion of this total return attributable to capital gain is at 7.74% and 2.06% per year. Dividends are currently at a slightly lower level at 6.23%.

Outstanding shares have increased by 16.2% and 13.6% per year over the past 5 and 10 years because of Debenture Conversions, Share Issues, DRIP, Stock Options and Exchange Shares. The company has revenue and cash flow growth, but EPS growth only over the past 10 years.

Revenue has grown at 22.7% and 19.4% per year over the past 5 and 10 years. Revenue per Share has only grown at 5.6% and 5.1% per year over the past 5 and 10 years. EPS is flat over the past 5 years and is up by 7.3% per year over the past 10 years. Cash Flow per Share is up by 6.5% and 7.5% per year over the past 5 and 10 years. If I were a shareholder, I would be more interested in per share values.

With earnings losses, it is hard to get a fix on historical Price/Earnings per Share ratios. The P/E for 2015 would be 43.33 based on a current stock price of $17.33 and 2015 EPS estimate of $0.40. This is, of course a very high P/E for a utility stock.

If you look at Price/Book Value per Share, the 10 year P/B Ratio is 1.80 and the current one is some 99% higher at 3.80 based on a BVPS of $4.86 and current stock price of $17.33. The problem here is that the BVPS is declining at around 7% per year. This stock price test suggests that the stock is expensive.

If you look at P/CF or P/S Ratios, they suggest that the stock price could be reasonable. The 10 year median P/CF is 10.83 with a current P/CF only slightly higher at 11.18. The 10 year median P/S Ratio is 4.97 and the current one at 3.09 is some 38% lower. The problem I see here is that a P/CF Ratio of 11.18 or a P/S Ratio of 3.09 is not particularly good ratios for a utility.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy and the consensus recommendation would be a buy. The 12 month consensus stock price is $19.00. This would imply a total return of 15.87% with 6.23% from dividends and 9.64% from capital gains.

Sound bit for Twitter and StockTwits is: I prefer companies that have positive EPS. See my spreadsheet at npi.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.

Northland Power Inc. indirectly owns interests in power projects. Northland's assets comprise facilities that produce electricity from "clean" natural gas and "green" renewable sources such as wind and biomass. Electricity generation is sold under long-term PPAs with creditworthy customers, and any fuel for natural-gas-fired projects, where required, is purchased under long-term contracts to assure stability of operating margins. This company operates in Canada, US and Germany. Its web site is here Northland 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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