I do not own this stock of Northland Power Inc (TSX-NPI, OTC-NPIFF). This company is into generating electric power. I have a lot invested in pipelines and I would like to have more invested in electric power as part of my utility’s investments. I read a report on this stock that said it was a good defensive stock to buy. That is, it is a good stock to hold in a stock market correction. I can certainly see the logic of using utility stocks as defensive stocks.
When I was updating my spreadsheet, I noticed debt ratios that I do not like. The Long Term Debt/Market Cap is high at 1.29. This needs to be under 1.00. This is occurring with a rapidly rising stock price. The Debt Ratio is just 1.17 and I prefer this to be 1.50 or higher. The Leverage and Debt/Equity Ratios are too high at 6.94 and 5.94. I prefer these to be under 3.00 and 2.00. Too much debt can spell trouble in hard times.
On the other hand, I noticed that the market keeps pushing the stock price higher. This stock is already up almost 70% so far this year. If you look at total return below, this stock has done very well. It will not do so well in the future on total return as the dividend yields are considerably lower. Total return considers both capital gains and dividend in calculating the return.
The dividend yields are currently moderate with dividend growth low almost non-existent. The current dividend yield is moderate (2% to 4%) at 2.59%. This company used to be an income trust and income trust have high yields. The 5 and 10 year median dividend yields are good (5% to 6%) at 5.13% and 6.18%. The historical median dividend yield is high (7% or higher) at 7.69%. The dividend growth over the past 5 years is at 2.13% per year. However, in the past 5 years (in fact past 11) years, there has been only one dividend increase and it was for 11.1%.
The Dividend Payout Ratios (DPR) need improving. The DPR for 2019 for EPS is 71% with 5 year coverage at 124%. This is too high, of course. The DPR for CFPS is 18% with 5 year coverage at 23% and this is fine. I looked at 3 sites for Free Cash Flow and all had a different answer. So, the DPR for FCF for 2019 could or could not be fine. The 5 year coverage is not because of years of negative FCF, which all sites say.
Debt Ratios need improving. The Long Term Debt/Market Cap is too high at 1.29. It needs to be under 1.00 and some analysts like it under 0.50. It has been too high for the past 5 years that I have looked at. The Liquidity Ratio is low at 0.91. However, if you add in cash flow after dividends, which you need to do for most utilities, it is good at 1.64. the Debt Ratio is much too low at 1.17. The Leverage and Debt/Equity Ratios are too high at 6.94 and 5.94.
The Total Return per year is shown below for years of 5 to 22 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 | 2.13% | 18.16% | 12.21% | 5.95% |
| 2009 | 10 | 1.06% | 15.34% | 8.58% | 6.76% |
| 2004 | 15 | 0.99% | 10.47% | 4.46% | 6.01% |
| 1999 | 20 | 1.28% | 15.19% | 6.24% | 8.94% |
| 1997 | 22 | 3.20% | 12.05% | 4.65% | 7.40% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 13.68, 15.65 and 17.62. The corresponding 10 year ratios are 13.38, 15.26 and 17.14. The corresponding historical ratios are 13.41, 15.49 and 17.86. The current P/E Ratio is 23.04 based on a stock price of $46.31 and EPS estimate for 2020 of 2.01. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $16.85. The 10 year low, median, and high median Price/Graham Price Ratios are 2.13, 2.50 and 2.69. The current P/GP Ratio is 2.75 based on a stock price of $46.31. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 4.66. The current P/B Ratio is 7.38 based on a Book Value of $1,267M, Book Value per Share of $6.28 and a stock price of $46.31. The current ratio is 58% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 7.08. The current P/CF Ratio is 7.82 based on Cash Flow per Share estimate for 2020 of $5.92, Cash Flow of $1,194M, and a stock price of 46.31. The current ratio is 10% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 7.69%. The current dividend yield is 2.59% based on dividends of $1.20 and a stock price of $46.31. The current dividend yield is 66% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 6.18%. The current dividend yield is 2.59% based on dividends of $1.20 and a stock price of $46.31. The current dividend yield is 58% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 5 year median dividend yield of 5.13%. The current dividend yield is 2.59% based on dividends of $1.20 and a stock price of $46.31. The current dividend yield is 49% below the 5 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is the stock price has taken off but dividends are flat.
The 10 year median Price/Sales (Revenue) Ratio is 3.64. The current P/S Ratio is 4.49 based on Revenue estimate for 2020 of $2082M, Revenue per Share of $10.32. The current ratio is 23% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. The dividend yield testing does not work because dividends are flat and the stock price has taken off. This used to be an income trust and as such had high dividend yields. They have good cash flow, but all other testing is showing the stock price as expensive.
Is it a good company at a reasonable price? I do not think that this stock is selling at a reasonable price. It would appear to be on the expensive side. It is not a dividend growth stock, which are the sort I like. Perhaps they should have cut their dividend when becoming a corporation, they may have been better off. The other thing I do not like is the debt level. Personally, I would look for another utility stock to buy rather than this one.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (4), Hold (5), Sell (1), No Opinion (1). The consensus would be a Hold. The 12 month stock price consensus is $45.00. This implies a total loss of 0.24% with a capital loss of 2.83% and dividends of 2.59%.
Analysts like this stock on Stock Chase and one mentions the good cash flow. Sneha Nahata on Motley Fool likes this company because of the steady dividend. The Executive Summary on Simply Wall Street gives the company two stars out of 5 and list 4 risks. A writer on Simply Wall Street likes the high ROC of the company, but feels it has too much debt. A writer on Simply Wall Street likes the TSR and the fact that the company went from EPS losses to positive EPS, but is worried about some of the risk warnings. Chris MacDonald on Bay Street thinks this is a company to watch.
Northland Power Inc is an operator of power producing facilities. These facilities generate electricity from natural gas or use renewable sources, such as wind and solar power. Most of the electricity produced by Northland Power comes from its thermal facilities. Additionally, almost all of Northland Power's power generation takes place in Canada. The company also owns assets in Mexico, the Netherlands, and Germany. Its web site is here Northland Power Inc.
The last stock I wrote about was about was Chesswood Group Ltd (TSX-CHW, OTC-CHWWF) ... learn more. The next stock I will write about will be Wild Brain Ltd (TSX-WILD, OTC- WLDBF) ... learn more on Wednesday, December 02, 2020 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks December 2020.... learn more on December 01, 2020 around 5 pm.
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