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 that with dividend information going back some 24 years, this company has raised the dividend 7 times and decreased it 8 times. It has been flat for 9 years. This stock used to be an income trust and as such, it could afford higher dividends. Even since changing to a corporation, dividends have been going down and they have decreased by 90%. There were big decreases in 2009, 2016 and 2020.
The dividend yields are moderate with dividend growth non-existent. The current dividend yield is moderate (2% to 4% ranges) at 2.96%. The 5 and 10 year median dividend yields are also moderate at 4.38% and 4.70%. The historical median dividend yield is high (above 6%) at 8.99%. It is high because the stock used to be an income trust. As discussed above, the dividends went down a lot between 2009 and 2020 (some 90%).
The current dividend is expected to be flat for the next couple of years. It is interesting that shareholders who have been in this stock for 20 and plus years have made money, but all in dividends only. The dividend payments changed from monthly to quarterly. They went from $0.02 monthly to $0.06 quarterly. (There was no dividend increase in 2020 as yearly dividend is still at $0.24. Some people have reported a dividend increase, but dividends only went from monthly payments to quarterly payments.)
The Dividend Payout Ratios (DPR) are improving. The DPR for EPS for 2020 cannot be calculated because of an EPS loss in 2020. Analysts expect the DPR for EPS for 2021 to be 30% and future years to go lower. The 5 year coverage is 428%. The DPR for CFPS for 2020 is 13% with 5 year coverage at 27%. The DPR for Free Cash Flow for 2020 is 32% with 5 year coverage at 430%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2020 is 0.26. The Liquidity Ratio for 2020 is 0.44, but if you add in cash flow after dividends it is 1.99. The Debt Ratio for 2020 is 2.29. Leverage and Debt/Equity Ratios for 2020 are 1.78 and 0.78.
The Total Return per year is shown below for years of 5 to 24 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | -27.52% | -13.74% | -18.51% | 4.78% |
| 2010 | 10 | -14.87% | -7.35% | -13.44% | 6.09% |
| 2005 | 15 | -13.15% | -0.86% | -9.43% | 8.57% |
| 2000 | 20 | -10.08% | 15.11% | -3.16% | 18.27% |
| 1996 | 24 | -7.65% | 12.18% | -3.12% | 15.31% |
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 16.65, 21.78 and 26.90. The corresponding historical ratios are 11.14, 12.37 and 14.47. The current P/E Ratio is 10.15 based on a stock price of $8.12 and EPS estimate for 2021 of $0.80. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $11.92. 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 0.68 based on a stock price of $8.12. 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 1.03 based on a stock price of $8.12, Book Value of $2,791M and a Book Value per Share of $7.90. The current ratio is 49% 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 8.85. The current P/CF Ratio is 2.79 based on a stock price of $8.12, Cash Flow per Share estimate for 2021 of $2.91 and Cash Flow of $1,028.3M. The current ratio is 68% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 8.99%. The current dividend yield is 2.96% based on a stock price of $8.12 and dividends of $0.24. The current dividend yield is 67% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is that dividends have been cut by over 90% since 2008.
I get a 10 year median dividend yield of 4.70%. The current dividend yield is 2.96% based on a stock price of $8.12 and dividends of $0.24. The current dividend yield is 37% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is that dividends have been cut by 80% over the past 10 years.
The 10 year median Price/Sales (Revenue) Ratio is 4.84. The current P/S Ratio is 1.02 based on a stock price of $8.12, Revenue estimate for 2021 of $2,825M and Revenue per Share of $7.99. The current ratio is 79% below the 10 year median 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. We cannot use the dividend yield test because of dividend cuts. The P/S Ratio test says the stock price is cheap as do all the other tests except for the dividend yield tests.
Is it a good company at a reasonable price? This stock seems to be cheap, but it is not surprising as it is an energy company. This is not a dividend growth company, so I am not interested in it. Also, I do not buy or have much investment in resources. They are too volatile. However, over the short term I would believe that people could earn a very good return on this stock as energy is expected to recover and that is probably true.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (8) and Hold (1). The consensus would be a Buy. The 12 month stock price consensus is $10.72. This implies a total return of 34.98% with 32.03% from capital gains and 2.96% from dividends.
The last two analysts on Stock Chase gave this stock a Buy and Do Not Buy recommendation. The executive summary on Simply Wall Street give this one risk item and 4 stars out of 5. A writer on Simply Wall Street talks about insiders’ trading. Eric Nuttall discusses Arc Resources on BNN.
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, natural gas liquids, and natural gas. Its web site is here ARC Resources Ltd.
The last stock I wrote about was about was Choice Properties REIT (TSX-CHP.UN, OTC-PPRQF) ... learn more. The next stock I will write about will be Russel Metals Inc (TSX-RUS, OTC-RUSMF) ... learn more on Friday, February 26, 2021 around 5 pm. Tomorrow on my other blog I will write about Algonquin Power and Utilities.... learn more on Thursday, February 25, 2021 around 5 pm.
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