I do not own this stock of ATCO Ltd (TSX-ACO.X, OTC-ACLLF). I started to look at this stock in 2009 because it was a dividend paying stock that was on everyone’s list. At that time this stock was on the Dividend Achievers list, the Dividend Aristocrats list and also was on Mike Higgs’ list. ATCO (TSX-ACO-X) owns 88% Canadian Utilities (TSX-CU), so you would not buy both these stocks.
When I was updating my spreadsheet, I noticed they have a market value of $5,707M but the company values their Property, Plant and Equipment at $17,857M. This is a big discrepancy. I know that this discrepancy has been happening for some time. Their Long Term Debt/Market Ratio is very high at 1.62. It is a problem when it is above 1.00. It has been above 1.00 since 2009 that I know of. It is obvious that the market does not value the companies Property, Plant and Equipment assets at the level the company does.
Also, there is a lack of growth in EPS. When you look at growth for the past 5 years it is showing as 4.19%. The company has been buying back stock at the rate of 3.19% per year over the past 5 years. So, the increase in EPS is just 1.00 over the past 5 years. Also, if you compare the average EPS for the 5 years ending in 2014 to the average EPS for the 5 years ending in 2019, the EPS is down by 3% per year. There was a gain on Sale of Operations of $174 or equal to 17% of the EPS or 2019. The only good news about the EPS is that the company 5 year coverage of Dividends by EPS is at 49%.
The dividend yields are moderate with dividend growth moderate. The current dividend yield is moderate (2% to 4% ranges) at 4.32%. The 5, 10 and historical dividend yields are also moderate, but lower at 2.73%, 2.20% and 2.14%. The dividend growth for the last 5 years is moderate (8% to 14% ranges) at 13.5% per year. See chart below.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2019 is 36% with 5 year coverage at 49%. The DPR for CFPS is 9% with 5 year coverage at 8%. The DPR for 2019 for Free Cash Flow is problematic as the three sites I looked at had different value for FCF. I looked at Morningstar, Market Screener and Wall Street Journal. Using the value from MS, I get a DPR for FCF for 2019 at 55% with 5 year coverage at 604%
Debt Ratios are fine, but the company does have a lot of debt. The Long Term Debt/Market Cap Ratio for 2019 is 1.62. This is high and I talked about this above. The Liquidity Ratio for 2019 is very good at 2.24, but this does fluctuate a lot and has a 5 year median of 1.67. The Debt Ratio is good at 1.57. The Leverage and Debt/Equity Ratios are fine at 2.76 and 1.76.
The Total Return per year is shown below for years of 5 to 31 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 | 13.49% | 3.56% | 0.87% | 2.69% |
| 2009 | 10 | 12.47% | 10.82% | 7.99% | 2.84% |
| 2004 | 15 | 10.75% | 11.28% | 8.51% | 2.78% |
| 1999 | 20 | 11.02% | 12.16% | 9.26% | 2.90% |
| 1994 | 25 | 13.55% | 13.84% | 10.61% | 3.22% |
| 1989 | 30 | 12.29% | 13.08% | 10.26% | 2.83% |
| 1988 | 31 | 11.87% | 14.25% | 11.09% | 3.16% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.29, 14.12 and 16.69. The corresponding 10 year ratios are 11.30, 13.01 and 14.45. The corresponding historical ratios are 9.54, 10.74 and 12.37. The current P/E Ratio is 14.20 based on a stock price of $40.04 and EPS estimate for 2020 of $$2.82. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $47.27. 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 0.85 based on a stock price of $40.04. 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 1.48. The current P/B Ratio is 1.14 based on a Book Value of $4,039M, Book Value per Share of $35.22 and a stock price of $40.04. The current ratio is 23% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Cash Flow per Share Ratio of 3.04. The current P/CF Ratio is 2.71 based on a stock price of $40.04, Cash Flow per Share estimate for 2020 of $14.80 and Cash Flow of $1,697M. The current ratio is 11% below the 10 year 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 2.14%. The current dividend yield is 4.35% based on a stock price of $40.04 and dividends per share of $1.74. The current dividend yield is 103% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 2.20%. The current dividend yield is 4.35% based on a stock price of $40.04 and dividends per share of $1.74. The current dividend yield is 98% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 1.12. The current P/S Ratio is 1.14 based on Revenue estimate for 2020 of $4,039M, Revenue per Share of $35.22 and a stock price of $40.04. The current ratio is 1% above the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and about the median.
Results of stock price testing is that the stock price is probably reasonable. The P/S Ratio testing just says it is reasonable, even though the dividend yield tests say it is cheap. I suspect it is in the reasonable category, but I could be wrong. I like the P/S Ratio test because revenue drives, in the end, earnings and cash flow.
Is it a good company at a reasonable price? The stock price is at a reasonable price. They have done well for the shareholders overtime and they have been paying and increasing their dividends for a long time. I worry about their debt level.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (3), Hold (3) and Sell (1). The consensus would be a Hold. The 12 month stock price consensus is $46.56. This implies a total return of $20.63 with 16.28% from capital gains and 4.35% from dividends.
Analysts on Stock Chase think this company is a good buy and their top pick. Aditya Raghunath on Motley Fool says this dividend aristocrat has raised their dividends every year since 1993. A writer on Simply Wall Street thinks this stock is cheap as it has a P/E 8.78 compared to peer average of 17.58. (However, part of the EPS is from a Sale and current P/E is 14.20.) A writer on Simply Wall Street says this is an attractive dividend stock that increases its dividends and can cover the dividend with their earnings and cash flow. The Blogger Dividend Growth Investing and Retirement took a look at this stock and other Canadian Utility stocks.
Atco Ltd is a Canadian holding company that offers gas, electric, and infrastructure solutions. The largest subsidiary of the company is Canadian utilities, which operates natural gas, electricity, and logistical services. Atco's primary segments include electricity, pipelines and liquid, Neltume Ports and Structures and logistics. The firm mainly operates in Canada and Australia, along with some operations in the United States, the United Kingdom, and Mexico. 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 Capital Power Corp (TSX-CPX, OTC- CPRHF) ... learn more on Wednesday, September 2, 2020 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks September 2020.... learn more on Tuesday, September 1, 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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