I do not own this stock of ATCO Ltd. (TSX-ACO.X, OTC-ACLLF). This is a dividend growth utility stock and as such I would consider it if I was looking for such a stock. Some people do not like the share structure. This stock is closely linked to Canadian Utilities (TSX-CU), so you would not buy both.
When I was updating my spreadsheet, I noticed is that none of my figures for the June 2017 reported in the June 2017 statements matched these figures in the June 2018 statements for June 2017. They say it was due to accounting policy changes. The other thing is that the Long Term Debt/Market Cap ratio is very high at 2.20. I think it is a problem when it is 1.00 and above.
Dividend yields used to be in the low (0 to 1%) to moderate (2 and 3%) range but lately they are in the good range (over 4%). The current dividend is 4%. The 5 year, 10 year and historical median dividend yields are 2.38%, 2.07% and 2.12%. Dividend growth has been moderate (8 to 14% range) with growth between 10.58% and 14.87%. The highest growth is the most recent. The increase for 2018 is $14.99%.
They can afford their dividends. The Dividend Payout Ratio for 2017 is 74% with the 5 year coverage at 38%. The DPR for CFPS for 2017 is 8% with 5 year coverage at 6%.
The debt ratio I do not like is the Long Term Debt/Market Cap Ratio. It was 1.93 in 2017 and is currently at 2.28. What this means is the market does not value the company’s debt at the level it is at. They do have assets to cover their debt but the concern here is what the market thinks (or the people in the market think). This is a concern.
The Liquidity Ratio for 2017 is very good at 2.20 but the current one at the end of the second quarter is low at 1.29. This company tends to have worsening Liquidity Ratios as the year goes on. However, they have a good cash flow and this cash flow per share after dividends leaves them with a good Liquidity Ratio. For example, for the second quarter of 2018 when you added in CFPS after dividends the ratio is 2.33.
The Debt Ratio for 2017 is 1.50. For the second quarter of 2018 it is 1.48. This ratio used to be higher but has been dropping since 2003. The 5 and 10 year median ratios are 1.57 and 1.59. Leverage and Debt/Equity Ratios are high, but this is usual for utilities. The ratios for 2017 are 3.01 and 2.01. The ratios at the end of the second quarter are 3.07 and 2.07.
The Total Return per year is show below for years of 5 to 25. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
The total return has been low over the past 5 and 10 years. Dividends have been good but the stock price has been falling. The stock price was level in 2017, but it has fallen by 16% so far in 2018. Problem is probably it is an Alberta company.
| Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|
| 5 | 14.87% | 4.57% | 2.20% | 2.37% |
| 10 | 11.53% | 7.16% | 5.01% | 2.15% |
| 15 | 10.58% | 12.82% | 10.02% | 2.81% |
| 20 | 11.63% | 11.35% | 8.85% | 2.49% |
| 25 | 13.71% | 15.14% | 11.85% | 3.29% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.08, 14.12 and 16.69. The corresponding 10 year ratios are 10.43, 11.57 and 13.10. The historical ratios are 9.54, 10.74 and 12.37. The current P/E Ratio is 12.07 based on a stock price of $37.65. The P/E Ratio has been increasing due a increase the price part of the ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $46.75. 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 0.81 based on a stock price of $37.65. 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 1.49. The current P/B Ratio is 1.21 based on Book Value of $3,569M, Book Value per Share of $31.13 and a stock price of $37.65. The current ratio is some 19% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 2.12%. The current dividend yield is 4.00% based on dividends of $1.51 and a stock price $37.65. The current dividends are 89% above the historical median. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 1.04. The current P/S Ratio is 0.99 based on 2018 Revenue estimate of $4,348M, Revenue per Share of $37.92 and a stock price of $37.65. The current ratio is some 4% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Most of the tests except for the P/E Ratio test and Dividend Yield test show that the stock is reasonable and below the median. The P/E Ratio show the stock is relatively reasonable but above the median but test is not a good one. It is based on EPS estimates which do not tend to be very accurate. The Dividend Yield test is a good one and it shows that the stock is relatively cheap. This is a good test because it is based on currently values and no estimates. The P/B Ratio test is also a good test and it shows that the stock is very close to cheap. I would think that the stock is from cheap to reasonable.
When I look at analysts’ recommendations I find Strong Buy (1), Buy (2), Hold (3) and Underperform (1) Ratings. These are all over the place just like the remarks on Stock Chase. The consensus would be a Hold. The 12 month stock price is $44.07. This implies a total return of $21.05 with 17.05% from capital gains and 4.00% from dividends and is based on a current price of $37.65.
Peter Morris Simply Wall Street says that this company is selling below its intrinsic value. Caroline Biscotti on Holland Review says that the Williams Percent Range shows that this company is neither overbought nor oversold. Ameya Charnalia on Toronto Star talks of more staff layoffs by ATCO in Alberta. James Watkins-Strand on Motley Fool says this company represents exceptional value. See what analysts are saying about this stock on Stock Chase. They have varying views. Some think it is cheap and others that it will get cheaper. Some see a problem with it only being in Canada and quite tied to Alberta.
Atco Ltd generates, transmits, and distributes electricity to customers. The company is also engaged in structures and logistics and pipelines and liquids business activities. 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 10, 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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