Tuesday, April 18, 2017

Canadian Natural Resources

Sound bite for Twitter and StockTwits is: Buy for diversification. Depending on what tests you do the stock is either expensive or cheap. I do prefer the dividend yield test because we are using current values and no estimates. However when all other tests show the stock is expensive, it would be prudent to be cautious. This is especially true because the P/B Ratio testing suggests an expensive price. See my spreadsheet on Canadian Natural Resources.

I own this stock of Canadian Natural Resources (TSX-CNQ, NYSE-CNQ). I started to follow this stock in 2008 because it was on the dividend growth lists that I followed. I first bought CNQ in September 2012 because the dividend yield was relatively high. The 5 and 10 year median dividend yields were 0.73% and 0.75%. The current one was at 1.32%. In April 2013 I bought more shares of this stock because the yield was then at 1.54%.

They have been increasing the dividends faster than the stock price has been going up. So the current dividend yield is higher than when I bought it. The current dividend yield at 2.48% is based on dividends of $1.10 and a stock price of $44.35. For the stock I bought in 2012, I am earning 3.46% on my original purchase price.

The dividend increases are good. The dividends have grown by 21.7% and 20.5% per year over the past 5 and 10 years. Since starting dividends in 2001 they increase the dividends every year expect in 2016. In 2016 they had a second year of EPS loss. Analysts expect improvements in EPS and a positive EPS this year.

The Dividend Payout Ratios for EPS has been low. The 5 year median is just 23%. The DPR for 2017 is expected to be around 72% and for 2018 to be lower still. The last dividend increase was in 2017 and it was for 10%. This is the second increase for 2017 after an earlier one for 8.7%. The dividends received in 2017 are some 16.85% above the ones for 2016.

Recently the price of oil and gas has been down so it is not surprising that this company has not been growing its earnings, revenue or cash flow. In spite of that I have done well with this stock. I have had it for 4.5 years and the total return is 9.89% per year with 7.35% per year from capital gains and 2.54% per year from dividends

One thing I do not like is that the Liquidity Ratio is low at just 0.85. Unfortunately, it is always been low. For a company reflecting the volatility of oil and gas resources I would prefer to see this at a stronger number. My preferred number is 1.50. However, if you add in cash flow after dividend it is 1.33. If you add back in the current portion of the long term debt and cash flow after dividends it is 2.06. A low Liquidity Ratio can make a company vulnerable in bad times. The other debt ratios are fine.

The 5 year low, median and high median Price/Earnings per Share Ratios are 8.90, 11.32 and 13.74. The corresponding 10 year values are 11.46, 14.55 and 16.76. The historical ones are 10.88, 15.34 and 17.23. Because there was two recent years of EPS losses, we should pay more attention to the 10 year and historical P/E Ratios. The current P/E Ratio is 29.77 based on a stock price of $44.35 and 2017 EPS estimate of $1.49. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $28.15. The 10 year low, median and high median Price/Graham Price Ratios are 0.86, 1.17 and 1.47. The current P/GP Ratio is 1.58 based on a stock price of $44.35. This stock price testing suggests that the stock price is relatively expensive.

I get a 10 year Price/Book Value per Share Ratio of 1.57. The current P/B Ratio is 1.88 a values some 19.6% higher. The current P/B Ratio is based on a stock price of $44.35 and BVPS of $23.64. This stock price testing suggests that the stock price is relatively reasonable but above the median. If the difference had been 20%, it would suggest that the stock price is relatively expensive. So it is close to being relatively expensive by this measure.

The dividend yield test tells a different story. The historical dividend yield is 0.87. The current dividend yield at 2.48% is some 185% above the historical yield. This stock price testing suggests that the stock price is relatively cheap. Note that the 5 and 10 year median yields are higher at 2.16% and 1.05% or the current yield is some 14% and 136% higher than the 5 and 10 year median yields.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Buy. The consensus recommendation is a Buy. The 12 month stock price consensus is $51.96. This implies a total return of 19.645 with 2.48% from dividends and 17.16% from capital gains.

Matt Smith of Motley Fool likes this stock. Mary Jones at Baxter Review gives some technical analysis on this stock. She says that the Williams Percent Range is at negative 39.32. A value between 0 and negative 20 says a stock is overbought and between negative 80 and negative 100 is oversold. So she is saying that this stock is neither overbought nor undersold, but is closer to overbought. The Term overbought means that a stock price is high. Heather Davidson on USA Commerce Daily says analysts are recommending this stock. (Note that values given are in US$.) See what analysts are saying about this stock on Stock Chase.

Canadian Natural Resources Ltd. is a senior oil and natural gas exploration, development and production company. The Company's operations are focused in Western Canada, in the U.K. sector of the North Sea and in offshore West Africa. Its web site is here Canadian Natural Resources.

The last stock I wrote about was about was Barclays PLC ADR (LSE-BARC, NYSE:-BCS)... learn more . The next stock I will write about will Veresen Inc. (TSX-VSN, OTC-FCGYF)... learn more on Wednesday, April 19, 2017 around 5 pm. Today on my other blog I will write about TD Bank Problems... learn more 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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