I do not own this stock of Encana Corp. (TSX-ECA, NYSE-ECA) but I used to. I had held this stock previously as Alberta Energy Company from April 2000 until August 2002 and made some 18% total returns per year. I had EnCana Corp from February 2006 to November 2009 and made a 9.54% per year total return. I sold this stock in 2009 because I only had 100 shares and the stock was going to split into two companies. I would have ended up with small investment in two companies.
When I was updating my spreadsheet, I noticed a lot of red ink. They have not been doing well lately. Also, I noticed that all debt ratios seemed to get worse in the second quarter compared to the year end. The Long Term Debt/Market Cap Ratio went higher from 0.32 to 0.45, the Liquidity Ratio down from 1.37 to 0.70, the Debt Ratio went down from 1.79 to 1.75 and the Leverage and Debt/Equity Ratios went up from 2.27 to 2.33 and 1.27 to 1.33, respectively.
Dividends are paid in US$. Over the years the dividends have gone up and down, but they have paid dividends. Since 2009 dividends have either been flat or decreased each year. Over the past 5 year dividends are down by 40% per year. So, I would not buy this for its dividends.
The current dividend yield is only 0.70%. I do not buy dividend paying companies when dividend yield is lower than 1%. The dividend yields in CDN$ terms have been as high as 4.52% and as low as 0.49%. The median historical dividend yield is 1.45%.
They have had problems covering the dividend with earnings since 2011. In 2017 because of good EPS, the dividend was finally covered and a DPR of 7.06%. However, the Dividend Payout Ratio for CFPS has been fine and low. The DPR for CFPS for 2017 is 4% with 5 year coverage at 12%. So, I am not worried about them covering their dividends.
Long Term Debt/Market Cap Ratio is fine with a current value of 0.45. You should worry when this gets close to or over 1.00. The current Liquidity Ratio is 0.70. This means that the current assets cannot cover the current liabilities. If you add in cash flow after dividends you get a ratio of 1.46. I would like to see this at 1.50 or better, but 1.46 is low but acceptable.
The current debt ratio at 1.75 is good as it is best at 1.50 or better and it is higher than 1.50. The current Leverage and Debt/Equity Ratios are 2.33 and 1.33. These are a little high but acceptable. However, you have to wonder when debt ratios, especially the Liquidity Ratios deteriorates so much from the annual statement. Last year between the annual statement and the second quarter, the debt ratios improved.
The Total Return per year is shown below for years of 5 to 25 for Canadian Shareholders. 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.
Below is Dividend Growth and Total Return for Canadian Shareholders. Long term shareholders have made some money. I have this stock coming from Alberta Energy Company which I had held.
| Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|
| 5 | -37.63% | -1.44% | -3.13% | 1.69% |
| 10 | -15.54% | -4.86% | -7.04% | 2.18% |
| 15 | -5.01% | 5.15% | 1.96% | 3.19% |
| 20 | 0.36% | 10.05% | 6.39% | 3.66% |
| 25 | 0.83% | 10.85% | 7.35% | 3.50% |
The Total Return per year is show below for years of 5 to 16 for US Shareholders. Below is Dividend Growth and Total Return for US Shareholders in EnCana. US shareholders have not done well over any period.
| Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|
| 5 | -40.43% | -6.07% | -7.57% | 1.50% |
| 10 | -17.53% | -7.07% | -9.21% | 2.14% |
| 15 | -3.54% | 1.76% | -1.11% | 2.88% |
| 20-16 | 1.01% | 2.40% | 0.40% | 2.00% |
| 25 | 2.11% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 2.55, 3.78 and 5.02. The corresponding 10 year ratios are 6.68, 9.05 and 11.43. The historical median ratios are 10.11, 12.42 and 15.47. These are all in CDN$ terms. The current P/E Ratio is 21.41 based on a stock price of $11.21 CDN$ and EPS estimate for 2018 of $0.52 CDN$ ($0.40 US). The current P/E Ratio is quite high by any standard. This stock price testing suggests the stock price is relatively expensive.
The 5 and also probably the 10 year median P/E Ratios are low because of recent earning losses. The Trailing P/E Ratio is 10.51 (based on 2017 EPS of $1.07 CDN$) and with the one for 2019 at 7.93 (based on 2019 EPS of $1.41 CDN$). These are better P/E Ratios. The P/E Ratio is often not a good indicator of stock price.
I get a Graham Price of $10.23 CDN$. The 10 year low, median, and high median Price/Graham Price Ratios are 0.68, 0.99 and 1.34. The current P/GP Ratio is 1.10 based on the stock price of $11.21 CDN$. This stock price testing suggests that the stock price is reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.35 CDN$. The current P/B Ratio is 1.26 based on a stock price of $11.21 CDN$, Book Value of $8,503M CDN$ and Book Value per Share of $8.89. The current P/B Ratio is 7% below the 10 year median ratio. This stock price testing suggests that the stock price is reasonable and below the median.
I get an historical median dividend yield of 1.45%. The current yield is 0.70% based on dividends of $0.08 CDN$ ($0.07 US$0) and a stock price of $11.21 CDN$ ($8.53 US$). The current dividend yield is 52% below the historical yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 2.33 US$. The current P/S Ratio is 1.62 US$ based on 2018 Revenue estimate of $5039M US$, Revenue per Share of $5.27 US$ and a stock price of $8.53 US$. The current ratio is some 31% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap.
The P/E Ratio test is not always a good one for various reasons. The Graham Price is a formula that takes into consideration both the EPS and Book Value. It is generally not a bad test. A Price/Graham Price Ratio of 1.10 is not a bad ratio in absolute terms. The problem with the dividend yield for this stock is that the company has been cutting dividends. So, it is not surprising to find a relatively low yield.
The P/B Ratio is often a very good test. There is nothing about this ratio for this stock to suggest any problems. The P/S Ratio is also often a very good test. Here again, I can find nothing negative to say about revenues (sales) for this stock. Both these tests suggest that the stock price is relatively good, one says below the median and the other says cheap. The P/B Ratio test might be the best as it does not use estimates.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (8), Hold (4) and Underperform (1). The consensus would be a Buy. The 12 month stock price consensus is $14.86. this implies a total return of $33.265 with 32.56% from capital gains and 0.70% from dividends.
The Canadian Press via CBC talks about this company acquiring Newfield Exploration Co. There are lots of articles on this. Javier Blas on Bloomberg says that investors are not pleased with the company acquiring Newfield Exploration Co . Matt Smith on Motley Fool thinks this stock is now attractively priced. Chris Varcoe on the Calgary Herald talks about how to solve the big discount for Canadian Oil. See what analysts are saying about this stock on Stock Chase.
Encana Corp is an independent oil and gas producer in North America. It is engaged in developing diverse resource plays producing natural gas, oil, and Natural Gas Liquids (NGL). The company is also engaged in marketing of natural gas, oil and NGLs. Its web site is here Encana Corp .
The last stock I wrote about was about was CCL Industries Inc. (TSX-CCL.B, OTC-CCDBF) ... learn more. The next stock I will write about will be Dollarama Inc. (TSX-DOL, OTC-DLMAF) ... learn more on Wednesday, November 7, 2018 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks November 2018.... learn more on Tuesday, November 6, 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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