Wednesday, March 22, 2017

AltaGas Ltd

Sound bite for Twitter and StockTwits is: Dividend growth utility. This stock seems to be testing as cheap to reasonable on some basis. The utility also has some vulnerability where liquidity, DRP and declining Revenue per Share is concerned. 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. The stock had a fairly strong balance sheet. 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.

So how have I done? Now I have been invested in the company for almost 8 years. I have made a total return per year of 13.17% with 5.78% per year from capital gains and 7.39% per year from dividends. So some 54% of my total return is dividends and 46% of my total return is capital gains.

The dividend yield has always been good on this stock. This used to be an income trust company so they will probably never again hit the high historical yields. They changed from an income trust in 2010 and that is more than 5 years ago. The current dividend is 6.78% based on dividends of $2.10 and a stock price of $30.98. I expect dividends to be more than 4% going forward. The 5 year median dividend yield is 4.47%.

Analysts seem to feel that the dividends will continue to increase even though the Dividend Payout Ratio against EPS is high. For 2016 it is 204% and for the last 5 years it is 192%. No one seems to expect that this will get much better soon. This is because many analysts still look at DPR using AFFO. For 2016 the DPR for AFFO was 68% and it is expected to be similar in 2017 and 2018.

For this stock the outstanding shares have been increasing by 13% and 12% per year over the past 5 and 10 years. Therefore to really check on growth you have to look at per share values. It does make a difference. For example Revenue growth over the past 5 and 10 years is at 7% and 4.9% per year. If you look at Revenue per Share, this has declined over the past 5 and 10 years by 5.6% and 5.9% per year.

The utility has third vulnerability in the low Liquidity Ratio. This ratio for 2016 is 0.74. If ratio is less than 1.00 it means that the current assets cannot cover the current liabilities. If you add in cash flow after dividends it is just up to 0.86. If you add back in the current portion of the long term debt the ratio is 1.21. Again if you add in cash flow after dividends it is up to 1.40. The preferred value for this ratio is 1.50 or above. Not only do covering current liabilities depend on current cash flow it depends on the current portion of the long term debt being rolled over.

The other debt ratios are fine. The Debt Ratio is 1.83. The preferred ratio is 1.50 and above. The Debt/Market Cap Ratio is 0.60. This ratio is just worrying if it approaches 1.00. The Leverage and Debt/Equity Ratios are 2.21 and 1.21.

The 5 year low, median and high median Price/Earnings per Share Ratios are 28.32, 31.83 and 35.33. The corresponding 10 year values are 21.99, 25.98 and 29.56. The historical ones are 13.02, 15.83 and 18.70. To me the reasonable ones are the historical ones. The current P/E Ratio is 29.50 based on a stock price of $30.98 and 2017 EPS estimate of $1.05. Compared to the 10 year and historical ratios, this one is relatively high and shows a relatively expensive stock price. Using P/E Ratios may not be the best method of determining stock price reasonability for this company.

I get a Graham price of 22.56. The 10 year low, median and high median Price/Graham Price Ratios are 1.28, 1.46 and 1.62. The current P/GP Ratio is 1.37 based on a stock price of $30.98. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 1.91. The current P/B Ratio is 1.44 based on Book Value per Share of $21.54 and a stock price of $30.98. The current P/B Ratio is some 25% lower than the 10 year median. This stock price testing suggests that the stock price is relatively cheap.

For dividend yield testing, the only one we can use is the 5 year one of 4.47%. This is because this stock used to be an income trust company until 2011. The current dividend yield is 6.78% based on dividends of $2.10 and a stock price of $30.98. The current dividend yield is some 51% above the 5 year dividend yield. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy and Hold recommendations. There are more Hold recommendations than Buy Recommendations. The consensus recommendation would be a Hold. The 12 month stock price is $35.52. This implies a total return of 21.43% with 6.78% from dividends and 14.65% from capital gains.

Kay Ng of Motley Fool feels that you can trust AltaGas Ltd.'s high dividend. An report from Market Wired on BOE Report gives an outline of the fourth quarterly results for this company. See what analysts are saying about this stock on Stock Chase. The views are rather mixed.

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.

The last stock I wrote about was about was TransCanada Corp. (TSX-TRP, NYSE-TRP)... learn more . The next stock I will write about will be Melcor Developments Inc. (TSX-MRD, OTC-MODVF)... learn more on Friday, March 24, 2017 around 5 pm. Tomorrow on my other blog I will write about Have Banks Learned Nothing... learn more on Thursday, March 23, 2017 around 5 pm.

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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