Friday, September 8, 2017


Sound bite for Twitter and StockTwits is: Dividend Growth Utility. The stock price is reasonable to cheap using the good measures of P/B Ratio and Dividend yield. This stock has a long history of yearly dividend increases. My spreadsheet goes back to 1993 and they have increased dividends every year since then. See my spreadsheet on ATCO Ltd.

I do not own this stock of ATCO Ltd. (TSX-ACO.X, OTC-ACLLF). I started to look at this stock in 2009 because it was a dividend paying stock that was on everyone’s list. At that time this stock was on the Dividend Achievers list, the Dividend Aristocrats list and also was on Mike Higgs’ list. ATCO (TSX-ACO-X) owns 88% Canadian Utilities (TSX-CU) so you would not buy both these stocks.

The dividends are moderate which I consider in the 2% and 3% range. The current dividend is 2.92% and this stock has a 5 year median of 1.88% (which is low) but an historical median that is moderate at 2.10%. The dividend growth is also moderate with growth of 14.9% and 10.8% per year over the past 5 and 10 years. I think moderate growth is in the 8% to 15% range.

The Dividend Payout Ratios are good with the DPR for EPS in 2016 at 38.5% and the 5 year coverage at 30%. The DPR for CFPS for 2016 is low at 6.6% with 5 year coverage of 5.4%.

What I do not like is that the Long Term Debt/Market Cap Ratio is over 1.00. For this stock the ratio is 1.62. This means that the outstanding long term debt is higher than the stock’s market cap. Unfortunately this is common with utility stocks.

The other debt ratios are fine with a Liquidity Ratio of 1.40 (which is on the low side) but if you include cash flow after dividends it is 3.08 for 2016. The Debt Ratio for 2016 is 1.57 and the Leverage and Debt/Equity Ratios are 2.74 and 1.74.

The Return on Equity is fine with the one for 2016 at 9.6% with a 5 year median of 13.4%. The ROE has been at or above 10% 3 times over the past 5 years and 8 times over the past 10 years. The ROE on comprehensive income for 2016 is low at 8.6% with a 5 year median of 11.7%. When the Comprehensive Income ROE being lower, it means that the ROE may not be quite as good as it appears.

The 5 year low, median and high median Price/Earnings per Share Ratios are 11.55, 13.62 and 15.16. The corresponding 10 year values are 10.09, 11.57 and 13.10. The historical values are 9.29, 10.67 and 12.34. The current P/E Ratio is 14.76. This is based on a stock price of $44.86 and 2017 EPS estimate of $3.04. This is a utility stock, so P/E Ratio should be on the low side. This stock price testing suggests that the stock price is relatively expensive.

The P/E Ratio is going up because price is going up but EPS is not. The 5 and 10 year growth in EPS is 1% and 5.6% per year. The stock price has gone up by 8.2% and 5.9% per year over the same periods. The EPS is expected to grow by 2.7% this year. So far the stock price has grown by 0.5% this year.

I get a Graham Price of $46.26. The 10 year low, median and high median Price/Graham Price Ratios are 0.78, 0.91 and 1.07. The current P/GP Ratio is 0.97 based on a stock price of $44.86. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The 10 year Price/Book Value per Share Ratio is 1.53. The current P/B Ratio is 1.43 based on Book Value of $3,587M, BVPS of $31.29 and a stock price of $44.86. The current P/B Ratio is 6.4% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

The historical median dividend yield is 2.10%. The current dividend yield is 2.92% based on dividends of $1.31 and a stock price of $44.86. The current dividend yield is some 39% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Sales (Revenue) Ratio of 1.00. The current P/S Ratio is 1.17 based on a stock price of $44.86, Revenue estimate for 2017 of 44,407M and Revenue per Share of $38.44. The current P/S Ratio is some 16.8% above the 10 year median. This stock price testing suggests that the stock price is relatively reasonable but above the median.

When I look at analysts’ recommendations, I find Buy (1), Hold (3) and Underperform (1). Most are a Buy and the consensus recommendation is a Buy. The 12 month stock price consensus is $49.00. This implies a total return of 12.13% with 9.23% from capital gains and 2.92% from dividends based on a current stock price of $44.86.

Lester Williams on Sky News suggests that this stock may be oversold. Haris Anwar of Motley Fool recommends this stock for a TFSA. Reid Southwick of Calgary Herald talk about what is happening in Alberta towns with shutting of coal electric plants. ATCO is one of the companies that must shut these plants in Alberta.

ATCO LTD. is a management holding company with operating subsidiaries in electric and natural gas utility operations, independent power operations, production, storage, processing, gathering, delivery of natural gas, technical facilities management for the industrial, defense and transportation sectors, the manufacture, sale and leasing of industrial shelters and industrial noise abatement technologies. ATCO has just over 50% stake in Canadian Utilities Ltd. The company utilizes a dual share structure of voting and non-voting shares. Its web site is here ATCO Ltd.

The last stock I wrote about was about was Exchange Income Corp. (TSX-EIF, OTC-EIFZF)... learn more. The next stock I will write about will be High Liner Foods (TSX-HLF, OTC-HLNFF)... learn more on Monday, September 11, 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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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