Encana Corp

Sound bite for Twitter and StockTwits is: I think cheap. The time to buy resource stocks is when they cut their dividends. I think that this stock may have hit bottom although that is always a hard call. You can generally only see if they hit bottom after the fact. However, generally big dividend cuts generally point to bottoms. A suspended dividend is diffidently a bottom. See my spreadsheet on Encana Corp.

I do not own this stock of Encana Corp. (TSX-ECA, NYSE-ECA), but I used to. I had held this stock previously as Alberta Energy Company from April 2000 until August 2002 and made some 18% total returns per year. I had EnCana Corp from February 2006 to November 2009 and made a 9.54% per year total return. I sold this stock in 2009 because I only had 100 shares and the stock was going to split into two companies. I would have ended up with small investment in two companies.

This is a dividend paying resource stock. Because it generally pays a good dividend you have to expect volatility in its dividend payments. They give good dividends in good times and cut back in bad times. In 2015 they had an earnings lost. This is a good reason to cut dividends and they did. The dividend was cut by almost 79% in 2016. They decreased the dividends in 2013 and 2014 and they were flat in 2015.

Dividends grow when times are good and shrink in bad times. The dividend on this stock is up by 6.1% per year over the past 10 years, but down by 18.9% per year over the past 5 years. Currently the dividend is very low, at just 0.58% based on dividends of $0.08 CDN$ ($0.06US$) and a stock price of $13.88 CDN$ ($10.25 US$).

This brings us to another point about this stock's dividend. The dividends are paid in US$ so for a Canadian Dividends will vary with each dividend payment depending on the currency exchange rates.

You may not be getting much in the way of dividends if you held this stock for a while. If you bought it 5, 10 or 15 years ago, and you paid a median price, you would be earning a dividend yield of 0.31%, 0.29% or 0.72%. However if you bought it 5, 10 or 15 years ago, and you paid a median price, then your original cost would be cover by dividends at 8.8%, 22.2% or 62.7%. The original cost coverage is not bad.

Since there was an earning loss in 2014, they paid out more in dividends than they earned. They have also paid out more in dividends over the past 5 years than they have earned. When comparing dividends to cash flow they have done much better. In 2015 they only paid out 16.6% of the CFPS in dividends. The 5 year median Dividend Payout Ratio for CFPS is also 16.6%.

The Liquidity Ratio is low. The ratio for 2015 is just 1.21 and I preferred it to be 1.50 or higher. The 5 year median Liquidity Ratio is also low at 1.45. This means that they depend on cash flow to get a good ratio. If you add in cash flow after dividends, the ratio becomes 2.29. The problem with low Liquidity Ratios is that it can leave a company vulnerable in bad times. Other debt ratios are fine.

When I look at analysts' recommendations I find Strong Buy, Buy, Hold and Underperform Recommendations. Most of the recommendations are Buy and Hold Recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $17.46 CDN$ ($12.96 US$). This implies a total return of 26.40% with 0.58% from dividends and 25.82% from capital gains.

You cannot use recent Price/Earnings per Share Ratios as the company has had recent EPS losses. The 10 year values are not much better. The historical low, median and high median P/E Ratios are 10.21, 12.42 and 15.47. There is not much earnings until 2018. If you use the EPS 2018 estimate of $1.29 CDN$ (0.96 US$) and the current stock price of $13.88 CDN$ the P/E Ratio is 10.73. This testing suggests that the stock price is relatively reasonable and below the median. It is almost cheap.

There is a similar problem with Graham Price. If we use last year Graham Price based on the past 3 earnings years of $11.89, you get a Price/Graham Price of 1.17. The 10 year low, median and high median P/GP Ratios are 0.77, 1.00 and 1.19. This would suggest that the stock price is reasonable but above the median.

I get a 10 year Price/Book Value per Share Ratio of 1.62. The current P/B Ratio is 1.58 a value some 2.2% lower. The current P/B Ratio is based on a stock price of $13.88 and BVPS of $8.78. There are also problems with this testing because Book Value is going down. BVPS has declined by 15.60% per year over the past 5 years. The decline has been over the past 2 years.

The dividend yield highs are not that high at 4.53% because generally when resource stocks get into trouble, dividends are cut. The current dividend yield is around the historical lows at 0.58%. You cannot really do dividend yield testing on stocks which cut as well as increase dividends.

The stock price is relatively low if you look on a stock price chart for Encana Corp. The problem with trying to valuate a resource stock can be tricky because of the boom bust characteristics of resources. Generally I would not buy a stock with dividend yield less than 1%, but for resource stock, the time to buy is generally when the yields are low because they probably just cut dividends. If you want to make money in resource stocks, you buy when they cut 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 those reports here and here.

Reuters in an article Financial Post passes on the information about Encana making a profit in the third quarter of 2016. Profit was due to cost cutting. Matthew DiLallo of Motley Fool talks about what he likes about this company. It is all about cash flow. Dolores Ford on Whats on Thorold comments on recent analysts' recommendations with 38% of analysts being positive about this stock. See what analysts are saying about this stock on Stock Chase.

The last stock I wrote about was about was CCL Industries Inc. (TSX-CCL.B, OTC-CCDBF)... learn more . The next stock I will write about will be Dollarama Inc. (TSX-DOL, OTC-DLMAF)... learn more on Tuesday, November 15, 2016 around 5 pm. Tomorrow on my other blog I will write about Inequality... learn more on Tuesday, November 15, 2016 around 5 pm.

Encana is a leading North American energy producer that is focused on growing its strong portfolio of diverse resource plays producing natural gas, oil and natural gas liquids. Its web site is here Encana Corp.

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.