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 this company had great debt ratios. The Liquidity Ratio is 4.65, with Debt Ratio at 5.89 and Leverage and Debt/Equity Ratios at 1.20 and 0.20. Inside own a lot of shares. For example, the CEO owns shares worth over $5M, the CFO owns shares worth over $1M as the Chairman. A Director owns shares worth over $3M. Also, insider buy shares last year with Net Insider Buying at 0.08%. Anything over 0.01% is high.
Dividend yields are in the Good (5% & 6% ranges) to High (7% and over). The current dividend yield is 8.33%, with 5, 10 and historical dividend yield are 5.13%, 5.01% and 9.25%. This company used to be an income trust. Income trusts can pay high dividends and payouts are based on Funds from Operations (FFO). They have been cutting their dividends. I do not see any growth in the near future. Although analysts do not see near term further cuts to the dividends.
The Dividend Payout Ratios are not where they should be. The DPR for EPS for 2019 cannot be calculated because the EPS is negative. The 5 year coverage is 314% and far too high. The DPR for CFPS for 2019 is 30% with 5 year coverage age 36%. The DPR has been decreasing and is now at a good level. The DPR for Free Cash Flow for 2019 cannot be calculated because the FCF is negative. The 5 year coverage is far too high at 377%.
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2019 is low at 0.25. The Liquidity Ratio for 2019 is low at 0.53, but if you add in cash flow after dividends it is fine at 1.70. The Debt Ratio is good at 2.47. The Leverage and Debt/Equity Ratios are also good at 1.68 and 0.38 respectively.
The Total Return per year is shown below for years of 5 to 23 to the end of 2019. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | -12.94% | -15.65% | -20.13% | 4.48% |
| 2009 | 10 | -7.44% | -1.47% | -8.51% | 7.04% |
| 2004 | 15 | -7.06% | 6.22% | -5.06% | 11.28% |
| 1999 | 20 | -3.97% | 21.27% | -0.39% | 21.66% |
| 1996 | 23 | -4.23% | 12.39% | -1.94% | 14.34% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.62, 16.78 and 20.94. The corresponding 10 year ratios are 19.80, 23.40, 27.00. The corresponding historical ratios are 11.68, 13.51 and 15.47. The current P/E Ratio 25.71 based on a stock price of $7.20 and EPS estimate for 2020 of $0.28. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $7.83. The 10 year low, median, and high median Price/Graham Price Ratios are 1.32, 1.62, 1.87. The current P/GP Ratio is 0.92 based on a stock price of $7.20. 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 0.74 based on a stock price of $7.20, Book Value of $3,440M and Book Value per Share of $9.73. The current ratio is 63% 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 9.25%. The current dividend yield is 8.33% based on dividends of $0.60 and a stock price of $7.20. The current yield is 9.9% below the historical yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 5.01%. The current dividend yield is 8.33% based on dividends of $0.60 and a stock price of $7.20. The current yield is 66% above the 10 year yield. 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 1.92 based on 2020 Revenue estimate of $1,328M, Revenue per Share of $3.76 and a stock price of $7.20. The current ratio is 62% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is probably cheap. This is showing in the P/S Ratio test, the P/B Ratio test, the 10 year median dividend yield test and the P/GP Ratio test. The 10 year median dividend yield test is probably much better than the historical median dividend yield test because this company used to be an income trust and income trust companies had very high yields compared to corporations. The P/E Ratios seemed to vary a lot.
Is it a good company at a reasonable price? I made money in the Canadian stock market because I kept away from resource stock. Resource stocks are volatile and I do not think they make good long term investments. This stock made a high in 2011 and the stock price is currently some 75% below that high. Last year the 12 month stock price consensus was $13.77. That implied 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. Instead the stock price 12 months later is at $7.20 and is 28% lower. The price is probably cheap.
When I look at analysts’ recommendations, I find Strong Buy (9), Buy (7) and Hold (1). The consensus would be a Strong Buy. The 12 months stock price consensus is $9.69. This implies a total return of 42.92% with 34.58% from capital gains and 8.33% from dividends.
See what analysts are saying on Stock Chase. They think it is a well-run company, but would not buy at the present time. Aditya Raghunath on Motley Fool says if you think energy might rebound, now maybe the time to buy this stock with its high yield. ARC Resources on Yahoo Finance talk about their forth quarterly results. A writer on Simply Wall Street says the company’s ROCE is too low and investors could probably find a more attractive investment elsewhere.
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 Richelieu Hardware Ltd (TSX-RCH, OTC-RHUHF) ... learn more. The next stock I will write about will be Manulife Financial Corp (TSX-MFC, NYSE-MFC) ... learn more on Tuesday, February 18, 2020 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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