ARC Resources Ltd

Sound bite for Twitter and StockTwits is: Dividend Paying Energy stock. The stock price is relatively cheap. The positives are cheap stock and insider buying, the negative is declining Revenue and Earnings. They cannot raise the dividends until the earnings are higher than the dividends. 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.

When I was updating my spreadsheet, I noticed there is relatively a lot of insider buying with NIB at 0.16% where you might expect it around 0.01% to 0.02%. There has been NIB since I started to track this stock in 2014. However, there is lots of red on my spreadsheet as Revenue, Earnings and Cash Flow have been declining.

This company used to be an income trust and therefore had very high yields in the past. They went over 20% at one point. This historical median yield is 9.50%, but since 2011 when the change to a corporation occurred, the median yield is much lower at 4.70%. The 5 and 10 year median yields are 4.06% and 5.01%. The current one is 6.20.%.

Most of the old income trust companies decreased their dividends when they became corporation. That is because I high rate of dividend payments, higher than the earnings, can be paid out under income trust. When the company became a corporation, they had to get their payout ratios in line with earnings. Often companies had time to do this because they had tax pools left to lower the taxes for a while after becoming corporations.

This company reduced their dividends by 50% in the 2008, 2009 time frame and then another 50% in 2016. When you look at dividend growth over the 22 years of this company, it is all negative as shown in the chart below.

They cannot afford their dividends, but the ratios are improving. The Dividend Payout Ratios for EPS for 2018 was 100% with 5 year coverage at 175%. The DPR for CFPS for 2018 was better at 26% with 5 year coverage at 36%. They still are showing DPR using FFO and giving a ratio of 26% with 5 year coverage at 36%.

The Long Term Debt/Market Cap Ratio for 2018 was good at 0.29. The Liquidity Ratios are good with the one for 2018 at 1.97 and 5 year median ratio also at 1.97. The Debt Ratios are good with the one for 2018 at 2.57 with 5 year median at 2.39. The Leverage and Debt/Equity Ratios are quite good also with the ones for 2018 at 1.64 and 0.64 respectively. The 5 year median ratios are 1.69 and 0.69 respectively.

The Total Return per year is shown below for years of 5 to 22 to the end of 2018. 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.

When this company was an income trust it has a very high dividend. Shareholders have only made money from the dividend payments.

From	Years	Div. Gth	Tot Ret	Cap Gain	Div.
2013	5	-12.94%	-18.16%	-22.82%	4.66%
2008	10	-13.87%	-1.15%	-8.69%	7.54%
2003	15	-7.06%	10.40%	-3.66%	14.06%
1998	20	-3.41%	29.61%	1.43%	28.18%
1996	22	-4.41%	12.42%	-2.08%	14.49%

The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.95, 19.50 and 26.05. The corresponding 10 year ratios are 19.80, 23.40 and 27.00. The historical ones are 12.22, 14.65 and 16.47. The current P/E Ratio is 22.00 based on a stock price of $9.68 and a 2019 EPS estimate of $0.44. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $10.13. 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 0.95 based on a stock price of $9.68. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio of 2.01. The current P/B Ratio is 0.93 based on a Book Value of $3,676M, Book Value per Share of $10.40 and a stock price of $9.68. The current P/B Ratio is some 54% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap.

I get an historical median dividend yield of 9.50%. The current dividend yield is 6.20% based on a stock price of $9.68 and dividends of $0.60. The current dividend is some 35% below the historical yield. This stock price testing suggests that the stock price is relatively expensive.

However, this company used to be an income trust and income trust corporation have higher dividend yields than corporations. The median dividend yield since this company was a corporation is 4.70%. The current dividend yield of 6.20% is some 32% above this. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median Price/Sales (Revenue) Ratio is 5.03. The current P/S Ratio is 2.60 based on 2019 Revenue estimate of $1,275M, Revenue per Share of $3.61 and a stock price of $9.68. The current ratio is some 47% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

Results of stock price testing is showing that the stock price is relatively cheap. The P/E Ratios are rather high because the EPS has been very volatile and much more so that the stock price. This is not a good test. The other testing is showing that the stock price is cheap. On an absolute basis a P/GP Ratio below 1.00 is showing a cheap price as is a P/B Ratio under 1.00. Certainly, the P/S Ratio and P/B Ratio testing is solid.

When I look at analysts’ recommendations, I find Strong Buy (2), Buy (14) and Hold (1). The stock price consensus is $13.77. This implies a total return of 48.45% with 42.25% from capital gain and 6.20% from dividends based on a current stock price of $9.68.

See what analysts are saying about this company on Stock Chase. Generally, they like the company and management, but one analyst feels that the dividend is not safe. Brian Pacampara on Motley Fool likes this company’s high dividend. Cameron Brookes on Simply Wall Street talks about the dividends not being well covered by earnings. . .

ARC Resources is an independent energy company engaged in the acquisition, exploration, development, and production of conventional oil and natural gas in Western Canada. The company produces light, medium, and heavy crude, condensate, NGLs, and natural gas. 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 IGM Financial (TSX-IGM, OTC-IGIFF) ... learn more on Friday, February 15, 2019 around 5 pm. Tomorrow on my other blog I will write about Ideal Retirement Budget learn more on Thursday, February 14, 2019 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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