Wednesday, March 27, 2019

AltaGas Ltd

Sound bite for Twitter and StockTwits is: Dividend Paying Utility. The stock price is probably cheap to reasonable. They have had trouble covering their dividends with earnings. This company used to be an income trust and as such rules for covering the dividend were different. Dividends are expected to be covered by next year. They are having trouble with generating earnings. They also have a debt ratio vulnerability. See my spreadsheet on AltaGas Ltd.

I own this stock of AltaGas Ltd (TSX-ALA, OTC-ATGFF). When I bought this stock in 2009 it was on many dividend growth stock lists. In 2009, I saw that this stock also had good growth in Revenues, Earnings, Dividends, and Stock Prices over the last 5 and 10 years. The stock had a fairly strong balance sheet. I took a small position in this stock, and planned to wait and see how things go with this stock before buying more. I bought more in 2010 and 2012.

When I was updating my spreadsheet, I noticed that no matter how they presented earnings, there had problems in 2018. They use AFFO, FFO and Normalized earnings. For 2018, all were negative or much lower than the previous year. There was an earnings loss of $2.25 and Normalized Earnings per Share went from $1.19 to $0.88.

Dividends have been growing since 2011 which was the last time dividends were cut. The chart below on dividend growth gives a false impression. It is to the end of 2018. However, there was another big dividend cut in 2019 of some 56%. If you do dividend growth to date the 5, 10 and 15 year periods are all of negative growth. It is only the 17 year growth that is positive and the growth is at 10.86% per year over the last 17 years.

The current dividend yield is moderate at 5.42%. The 5, 10 and historical dividend yields are moderate to good with yields of 6.41%, 5.69% and 6.31%, respectively.

The earnings for this company dropped in 2015 and cover their dividends with earnings increased greatly. Since then was a big earnings loss in 2018, the DPR is not calculable. The DPR for 2019 is expected to be 101% and lower again in 2020. The DPR for CFPS for 2018 is very high at 148% with 5 year coverage at 68%. I prefer this to be at 40% or less.

They changed to an income trust in 2004 and increased the dividends by 221%. They change back to a corporation in 2010 and decreased the dividends by 39%. Under the income trust rules, affording dividends has different rules and earnings do not matter. As a corporation earnings need to cover the dividends. The dividends have not been covered by earnings since 2007.

Debt Ratios are a vulnerability. The Long Term Debt/Market Cap Ratio for 2018 is very high at 2.11. This is because of a big increase in the Long Term Debt. There was also a significant drop in Market Cap of 51%. The Liquidity Ratio is a vulnerability as it is only 0.98. It gets to 1.26 if you add back in current portion of the long term debt.

The Debt Ratio is a little low at 1.48 as I would like this to be at 1.50 or better. The Leverage and Debt/Equity Ratios for 2018 are 3.07 and 2.07 and are a little high. I prefer them to be below3.00 and below 2.00, respectively.

The Total Return per year is shown below for years of 5 to 19 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.

The stock is up by 27% year to date, but this does not help 5 year total return much. The 5 year total return to date is still negative at 10.45%.

From Years Div. Gth Tot Ret Cap Gain Div.
2013 5 8.01% -11.75% -19.36% 7.61%
2008 10 0.33% 8.97% -2.11% 11.07%
2003 15 12.54% 11.70% -0.64% 12.33%
1999 19 17.08% 17.71% 4.52% 13.19%

The 5 year low, median, and high median Price/Earnings per Share Ratios are 49.9, 60.72 and 71.49. The 10 year corresponding ratios are 24.24, 28.48 and 32.71. The corresponding historical ratios are 13.02, 15.83 and 18.70. The current P/E Ratio is 18.63 based on a stock price of $17.70 and 2019 EPS estimate of $0.95. This stock price testing suggests that the stock price is relatively reasonable.

I get a Graham Price of $21.04. The 10 year low, median, and high median Price/Graham Price Ratios are 1.33, 1.62 and 1.86. The current P/GP Ratio is 0.84 based on a stock price of $17.70. 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 1.71. The current P/B Ratio is 0.85 based on a Book Value of $5,701M, Book Value per Share of $20.71 and a stock price of $17.70. The current ratio is some 50% below the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.

I get an historical median dividend yield of 6.31%. The current dividend yield is 5.42% based on a stock price of 17.70 and dividends of $0.96. The current yield is some 14% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The 10 year median Price/Sales (Revenue) Ratio is 2.17. The current P/S Ratio is 1.17 based on a stock price of $17.70, Revenue estimate for 2019 of $4,47M and Revenue per Share of $16.05. The current ratio is some 46% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap.

Results of stock price testing is that the price is probably cheap to reasonable. Both the P/B Ratio and the P/S Tests says that the stock price is cheap. These are good tests. The P/E Ratios are mostly ridiculous except for the historical ones. This is because of recent big earnings losses. The dividend yield test is highly affected by the recent dividend cut, but you cannot ignore this test.

When I look at analysts’ recommendations, I find Strong Buy (1), Buy 6), Hold (8) and Underperform (1). The consensus would be a Hold. The stock price consensus is $19.32. This implies a total return of 14.58% with 9.15% from capital gains and 5.42% from dividends based on a stock price of $17.70.

See what analysts are saying about this stock on Stock Chase. They like the company and expect a recovery. Mat Litalien, on Motley Fool talks about the problems with ALA’s acquisition of WGL. A writer on Simply Wall Street talks about high debt being dangerous in unexpected downturns. ZLZ Investing on Seeking Alpha says the company’s short comings do not warrant an investment at current price. Jimmy Cauthen on K Reviewer talks about some recent analysts recommendations on this stock.

AltaGas Ltd owns and operates a diversified basket of energy infrastructure businesses. Business is conducted through three segments: Midstream, power, and utilities. Revenue is derived from customers in both Canada and the United States, with Canadian customers contributing the most. Its web site is here AltaGas Ltd.

The last stock I wrote about was about was TransCanada Corp (TSX-TRP, NYSE-TRP) ... learn more. The next stock I will write about will be BCE Inc. (TSX-BCE, NYSE-BCE) ... learn more on Friday, March 29, 2019 around 5 pm. Tomorrow on my other blog I will write about Some Good Stocks from My Portfolio.... learn more on Thursday, March 28, 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.

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.

No comments:

Post a Comment