Monday, January 29, 2018

Valener Inc.

Sound bite for Twitter and StockTwits is: Dividend Paying Utility. I do not think that the rather high dividend yield makes up for no dividend growth. I personally would like a lower yield and dividend growth. Most analysts talk about buying this stock for income purposes. See my spreadsheet on Valener Inc.

I do not own this stock of Valener Inc. (TSX-VNR, OTC-VNRCF). I was looking for another utility to invest in, in 2009 and I was looking possibly at another pipeline stock. This company has natural gas pipelines in Quebec. I also recognized the name of this company. In 2010 it reorganized and made a public utility stock out of 29% of what was Gas Metro. This makes the valuation of this stock very complex.

What I noticed updating my spreadsheet is that dividends have gone both up and down, but over the longer term there is no increase. I have dividend growth over the past 5, 10, 15, 20 and 24 years and only in last 5 year duration is there an increase in dividends at the rate of 2.1% per year. For the 10, 15, 20 and 24 year periods dividends have declined by 1.1%, 1%, 0.9% and 0.2% per year.

The dividend yield has always been quite high. The historical dividend high is around 10.5% and the historical dividend low is around 5%. It has an historical median yield of 7.05%. The current dividend yield is 5.67% with 5 and 10 year median dividend yields at 6.14% and 6.47%.

Surprisingly, the total return is quite reasonable. The total return over the past 5, 10, 15, 20 and 24 years is at 12.86%, 9.32%, 7.15%, 7.45% and 10.39% per year. Total return includes both dividends and capital gains. This is a compounded return rate and it is from December to December. For example, for the 10 year total returns I use the returns from December 2007 to December 2017.

I looked at what part of the total return was dividend and what part was capital gain. Turns out the most of the total return is dividend. The dividend portion of the total return for the past 5, 10, 15, 20 and 24 year is 5.67%, 5.97%, 5.93%, 6.28% and 8.08%. The capital gains portion of the total return is 7.19%, 3.35%, 1.21%, 1.17% and 2.31%.

To me this would not be a stock to use to build a dividend income portfolio. When you are building such a portfolio you want to have capital gains rather than dividend income. If you buy and hold like I do, then you have little capital gain tax. With this stock because most of the return is in dividends, you would be paying lots of tax when building a portfolio and that makes no sense to me.

The 5 year low, median and high median Price/Earnings per Share Ratios are 13.75, 15.27 and 16.57. The corresponding 10 year ratios are 13.72, 15.05 and 16.23. The historical ratios are 12.59, 13.93 and 15.08. The current P/E Ratio is 17.08 based on a stock price of $22.71 and 2018 EPS estimate of $1.33. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $22.53. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 0.90 and 1.02. The current P/GP Ratio is 1.01 based on a stock price of $22.71. This stock price testing suggests that the stock price is relatively reasonable but above the median and very close to expensive.

The 10 year Price/Book Value per Share Ratio 1.11. The current P/B Ratio is 1.34 based on Book Value of $659.5M, Book Value per Share of $16.96 and a stock price of 22.71. There ratios are rather low as an ratio of 1.50 is considered still a good P/B Ratio. The current P/B Ratio is some 20.8% higher the 10 year median P/B Ratio. This stock price testing suggests that the stock price is relatively expensive.

The historical median dividend yield is 7.05%. The current dividend yield is 5.11% based on a stock price of $22.71 and dividends of $1.16. The current dividend yield is some 27.6% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations I find Buy (1) and Hold (5). The 12 month stock price consensus is $23.92. This implies a total return of 10.44% with 5.33% from capital gains and 5.11% from dividends based on a current stock price of $22.71.

An article on Economistan talks about recent analyst ratings on this stock. TD Bank gave it a Hold and a stock price target of $21.00. See what analysts say about this stock on Stock Chase. They remark on its good dividend yield and that it is a play on Gaz Metro.

Valener Inc .through its subsidiaries engaged in the regulated energy business in the United States and Canada. Its core business operations involve natural gas distribution in Quebec and Vermont as well as electricity distribution in Vermont. Its web site is here Valener Inc.

The last stock I wrote about was about was Enghouse Systems Ltd (TSX-ENGH, OTC-EGHSF)... learn more. The next stock I will write about will be Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR)... learn more on Wednesday, January 31, 2018 around 5 pm. Tomorrow on my other blog I will write about Banks and Ratios 2.... learn more on January 30, 2018 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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