ARC Resources Ltd

Sound bite for Twitter and StockTwits is: Dividend Paying Energy. It would appear that the stock price is relatively cheap. However, I would think there is a lot of risk in this stock and I do not see the dividend as being safe as they cannot afford what they are paying. Insiders are buying. See my spreadsheet on ARC Resources Ltd.

I do not own this stock of ARC Resources Ltd. (TSX-ARX, OTC-AETUF). When TFSA first came out, this stock was recommended for this account as it was an income trust at that point and most of the distributions were taxable. This stock is no longer an income trust and the distributions are now dividends and taxed as normal Canadian dividends.

Dividends have been reducing and not much capital gains have been made on this stock, but nevertheless, long term investors have made money in the dividends that they did receive. Investors of 15 and 20 years have total returns of 15% and 17% per year. This is interesting. But it happened because the company was an income trust with high dividends. This situation is unlikely to reoccur.

Dividends have only declined over the past 5 to 21 years. Dividends have declined by 12.9%, 12.9%, 6.2%, 4.2% and 4.6% per year over the past 5, 10, 15, 20 and 21 years. They cannot afford their dividends. The Dividend Payout Ratio for 2017 was good at 54%. However, the 5 year coverage is 186% and DPR is expected to be above 100% over the next few years. The DPR for CFPS is good. For 2017 it was 29% with 5 year coverage at 40%.

Even though they cannot cover their dividends, no analysts are suggesting that they will but cut dividends again. They have been declining because this company used to be an income trust and as such had quite high dividends. The historical median dividend yield is still very high at 10.21%. Dividends will never again reach the heights that they did prior to 2011 when this company changed from an income to a corporation.

The total returns over the past 15, 20 and 21 years are 15.05%, 16.82% and 13.04% per year. The portion of this total returns attributed to capital gains are 1.33%, 1.81% and 0.66% per year over these periods. The portion attributed to dividends is 13.72%, 15.00%, and 12.38% per year over these periods.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.36, 24.06 and 27.76. The corresponding 10 year ratios are 19.80, 23.40 and 27.00. The historical ratios are 11.68, 13.51 and 15.47. It would appear that the stock price has not fallen as fast as the EPS over the last while. The current P/E Ratio is 27.41 based on a stock price of $12.61 and 2018 EPS estimate of $0.46. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham price of $10.36. The 10 year low median and high median Price/Graham Price Ratios are 1.32, 1.62 and 1.87. The current P/GP Ratio is 1.22. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median Price/Book Value per Share Ratio is 2.13. The current P/B Ratio is 1.21 based on Book Value of $3,669M, Book Value per Share of $10.38 and a stock price of $12.61. The current P/B Ratio is some 43% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap.

Because this company used to be an income trust, it will never again hit the dividend yield highs of the past. Since it has been a corporation, the dividend yield median is 4.52%. The current dividend yield is 4.76% based on dividends of $0.60 and stock price of $12.61. The current dividends yield is some 5.3% lower than the median dividend yield since 2011. By this measure, the stock price is relatively reasonable and below the median.

The 10 year median Price/Sales (Revenue) Ratio is 5.03. The Current P/S Ratio is 3.31 based on 2018 Revenue estimate of $1,348M, Revenue per Share of $3.81 and a stock price of $12.61. The current P/S Ratio is some 34% below the 10 year median P/S Ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts’ recommendations I find Strong Buy (1), Buy (13) and Hold (4) recommendations. The consensus would be a Buy. The 12 month stock price is 18.66. This implies a total return of 52.74% with 47.98% from capital gains and 4.76% from dividends.

Chris Newton on Energetic City talks about this company replacing their reserves. Cole Patterson on Simply Wall Street talks about insiders buying. Net insider buyer over the past year is at 0.04%. This is high. Louis Casey on BZ Weekly talks about recent analyst’s recommendations. See what analysts are saying about this stock on Stock Chase. Analysts mostly think that this is a good company.

ARC Resources Ltd is and oil and gas company. It is engaged in the acquisition, exploration and development of petroleum and gas properties. Its web site is here ARC Resources Ltd.

The last stock I wrote about was about was Absolute Software Corporation (TSX-ABT, OTC-ALSWF)... learn more. The next stock I will write about will be Manulife Financial Corp. (TSX-MFC, NYSE-MFC)... learn more on Wednesday, February 14, 2018 around 5 pm. Tomorrow on my other blog I will write about Investing is a Marathon.... learn more on Tuesday, February 13, 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.

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