Wednesday, April 27, 2016

Veresen Inc.

Sound bite for Twitter and StockTwits is: Cheap and Risky. It is risky because the dividend yield is very high and dividends could be cut. See my spreadsheet on Veresen Inc.

I own this stock of Veresen Inc. (TSX-VSN, OTC-FCGYF). I bought this stock in 2008 as Fort Chicago Energy Partnership. At that time it was a publicly traded limited partnership with increasing and high dividends. In 2010 the company changed to a corporation.

The big question on this stock is, is the dividend safe? I do not think so and others seem to agree. They are now a corporation and have been one since 2011. They cannot afford their dividend as they cannot cover it with earnings.

I have done well by this stock mainly because of the high dividend it has paid in the past. My total return is 17.09% per year with 14.05% per year from dividends and 3.04% from capital gains. I have received $7.14 in dividends on stock I paid $7.08 for. Since 100% of the cost of the stock has been paid for, I am never going to lose on this stock, but will I make any money in the future? One buys stocks so that they can continue to pay you. I do not think that they will cancel the dividend or go bankrupt at this point, but their future seems at present to be unclear.

If they cut the dividend in half, they might begin to be able afford their dividend in the near future and the dividend yield would still be above 5%. Depending on how you look at Dividend Payout Ratios, some are not so bad. In 2015, the DPR for AFFO was 94%. A lot of dividends are not paid in cash as investors are using DRIPs to increase their shares.

Of course, because the number of outstanding shares is going up, growth per share values are quite low. For example, Revenue is down by 11.3% and 8% per year over the past 5 and 10 years, but Revenue per Share is down by 21.8% and 15.4% per year over the same time period. Shares are not only going up for DRIPs, but because of debentures converting to common shares and share issues. The outstanding shares have increased by 13.5 and 8.7% per year over the past 5 and 10 years.

As the EPS has been going down, the P/E Ratios have been rising. The 5 and 10 year median P/E Ratios at 65.26 and 35.86 respectively are much too high for a utility. The historical median P/E Ratios are much more reasonable at 17.63, 21.10 and 24.87 for low, median and high median ratios. The current P/E Ratios 50.72 based on a stock price of $9.13 and 2016 EPS estimate of $0.18. This is nonsense for a P/E Ratio for a utility and P/E Ratio does not help in pricing this stock.

The 10 year Price/Book Value per Share Ratio is 1.83. The current P/B Ratio is 1.07 based on BVPS of $8.53 and a stock price of $9.13. The current P/B Ratio is 41.5% lower than the 10 year median. A P/B Ratio of 1.07 is a very low P/B Ratio. This testing suggests that the stock price is relatively cheap. This is also a good test because it does not rely on estimate.

Because this stock used to be an income trust, the historical high dividend yield is very high at almost 15%. The historical median dividend yield is somewhat lower at 7.8%. It was thought that most old income trust companies would end up with dividend yields of 4 to 5%. This stock never really got that low. The current dividend yield is very high currently at 11%. This would suggest that the stock price is cheap. Also such a high dividend suggests that the stock is also risky.

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 stock price is $10.98. This implies a total return of 31.22% with 20.26% from capital gains and 10.95% from dividends.

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 that report here and here.

The last stock I wrote about was about was Canadian Natural Resources (TSX-CNQ, NYSE-CNQ)... learn more . The next stock I will write about will be SNC-Lavalin Group Inc. (TSX-SNC, OTC-SNCAF)... learn more on Friday, April 29, 2016 around 5 pm.

Nelson Smith writing in January 2016 for Motley Fool seemed to think the dividend was safe. By March 2016, Nelson Smith of Motley Fool is not so sure that the dividend is all that safe. The company is paying out $1.00 and the company has recently said that payout for 2016 will be between $0.94 and $1.08. Late last year Ryan Vanzo also of Motley Fool thinks that this company has put the company in jeopardy with their Jordan Cove terminal project. Just recently the US regulators have denied the company's plan to build the Jordan Cove terminal. Veresen has filed for a rehearing on Jordan Cover Terminal, but it probably is not likely to proceed.

Veresen is a leading diversified energy infrastructure company that owns and operates energy infrastructure assets across North America. We are engaged in three principal business lines of Pipelines, Midstream and Power (gas-fired and renewable facilities). Its web site is here Veresen 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.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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