Wednesday, March 30, 2016

AltaGas Ltd.

Sound bite for Twitter and StockTwits is: Price could be cheap. Certainly by estimates, analysts expect this stock to do better, but are mostly giving it a Hold. Perhaps they do not believe in buying stocks when they are cheap. See my spreadsheet on AltaGas Ltd.

I own this stock of AltaGas Ltd. (TSX-ALA, OTC-ATGFF). When I bought this stock in 2009 it was on many dividend growth stock lists. In 2009, I saw that this stock also had good growth in Revenues, Earnings, Dividends and Stock Prices over the last 5 and 10 years. I took a small position in this stock, and planned to wait and see how things go with this stock before buying more. I bought more in 2010 and 2012.

This company used to be an income trust. They cut their dividends by almost 39% when they became a corporation. They were raising their dividends prior to this and after cutting the dividends in 2010 they began raising them again. The last dividend increase was for 3.1% in 2015 but this was the second raise for 2015. The dividends paid in 2015 were 11.8% higher than those paid in 2014. Dividends are still 8% lower than the going rate in 2010 before the dividend cut.

As far as Dividend Payout Ratios goes, there are a number of things to consider. Currently they are paying out more in dividends than EPS, but this is expected by analysts to be corrected by 2017. They DPR for EPS for 2015 was over 2000%. It is expected to be 116% then 92% in 2016 and 2017.

This company puts out Normalized EPS which is basically getting rid of unusual or one-time costs. A lot of analysts follow Normalized EPS. Even at that they are paying out more than EPS. The DPR for Normalized EPS for 2015 was 183% and for 2016 is expected to be 105%. Other analysts are looking a DPR re FFO and AFFO. The DPR for FFO for 2015 was 55% and is expected to be 53% in 2016. The DPR for AFFO was 63% for 2015 and is expected to be 53% in 2016.

It would seem that no analyst expect dividends to be cut. Rather they all expect that the dividends paid by this company will continue to rise.

How have I done? I first bought this stock in 2009 and did later purchases also. My total return is 14.93% per year with 7.83% from capital gains and 7.10% from dividends. I have received $8.29 in dividends per share and with a cost of $22.16 per share some 37.4% of my original cost has been paid by dividends.

The current dividend yield is rather high at 6.11%% based on dividends of $1.98 and a stock price of $32.38. On the stock I bought in 2009, I am earning a dividend yield of 12.4% on my original cost. On the stock I bought in 2010, I am earning a dividend yield of 10.9% on my original cost. On the stock I bought in 2012, I am earning 6.5% dividend yield on my original cost.

This stock hit a high in 2014 ($52.59 in August) and the price was dropping in until the first part of 2016 ($28.27 in January) when it started to increase again and is presently at $32.38.

The 5 year low, median and high median Price/Earnings per Share Ratios are 26.32, 29.31 and 33.13. These are a lot higher than the corresponding 10 year ratios of 17.86, 20.29 and 22.72. Also the historical ratios are still lower at 12.74, 15.60 and 18.61. These ratios seem high to me for a utility except for the historical values. The current P/E Ratio is 19.05 based on a stock price of $32.38 and 2016 EPS estimate of $1.70. I would suggest that the current P/E Ratio points to a reasonable stock price.

I get a Graham price of $28.85. The 10 years low, median and high median Price/Graham Price Ratios are 1.22, 1.38 and 1.57. The current P/GP Ratio is 1.12 based on a stock price of $32.38. This stock price testing suggests that the stock price is relatively cheap.

You do not get any different results using AFFO, FFO or Normalized EPS. The current P/AFFO Ratio is 8.59 compared to a 5 year median P/AFFO Ratio of 12.63. The current P/FFO Ratio is 8.63 compared to the 5 year median P/AFFO Ratio of 10.66 or the 10 year median P/AFFO Ratio of 9.63. The current P/NEPS Ratio is 17.23 compared to the 5 year median P/AFFO Ratio of 27.01 or the 10 year median P/AFFO Ratio of 18.81. From all this it is clear analysts expect the company to better in this year relative to the past few years.

By the way, the historical dividend yield is 4.96%. The current dividend yield is 6.11% a value some 23% higher. This testing suggests that the stock price is relatively cheap.

This expectation of the stock doing well in 2016 does not show in analysts' recommendations, where I find recommendations of Strong Buy, Buy and Hold. Most of the recommendations are a Hold, but the consensus recommendation would be a Buy. The 12 month target price is $34.72. This implies a total return of 13.34% with 7.23% from capital gains and 6.11% from dividends.

There is an article by Geoffrey Morgan in Financial Post about AltaGas shelving the Douglas Channel LNG project due to adverse economic conditions and worsening global energy prices.. Inzkeeper on Seeking Alpha really likes this stock and she explains why. David Hannula on Business Standard Tribute talks about how analysts feel about this stock. Most seem to feel negative and a lot have downgraded this stock. Jonathan Ratner in the Financial Post thinks that this company is being dragged down by negative market sentiment. He is talking about information from Aubrey Hearn, of Sentry Small/Mid Cap Income Fund,

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

The last stock I wrote about was TransCanada Corp. (TSX-TRP, NYSE-TRP)... learn more. The next stock I will write about is BCE Inc. (TSX-BCE, NYSE-BCE)... learn more on Friday, April 1, 2016 around 5 pm.

AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is here AltaGas Ltd.

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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