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 52.3% Canadian Utilities (TSX-CU), so you would not buy both these stocks.
When I was updating my spreadsheet, I noticed that this company peaked in 2014 as far as Revenue and EPS goes, but dividends continued to be raised. This has given rise to higher and higher Dividend Payout Ratios. In the near future, analysts think that EPS will rise and DPR will be better and lower. Analysts thought that last year (2019) there would be a recovery in Revenue and EPS in 2020, but lower Revenue in 2020 lead to a lower EPS.
The dividend yields are moderate with dividend growth moderate. The current dividend yield is moderate (2% to 4% ranges) at 4.19%. The 5, 10 and historical dividend yields are also moderate at 3.63%, 2.55% and 2.14%. The dividend growth is moderate (8% to 14% ranges) at 12% per year over the past 5 years. The last dividend increase was in 2021 and it was for 3%. The last 3 increases were in the low range (under 8%).
The Dividend Payout Ratios (DPR) need improving an analysts think this will happen. The DPR for EPS for 2020 was 79% with 5 year coverage at 51%. The DPR for CFPS for 2020 is 11% with 5 year coverage at 9%. The DPR for Free Cash Flow is 22% with 5 year coverage at 182%. Site vary widely on the value of FCF.
Debt Ratios are showing debt to be rather high. The Long Term Debt/Market Cap Ratio for 2020 is 2.25. Any value of 1.00 is bad as at the value the Long Term Debt equals the Market Cap. This company has a lot of debt. According to the company, their Long Term Debt/Assets (Hard Assets) is good at 0.51. Assets/Current Liabilities Ratio is good at 20.67 which is good. The Debt to Cash Flow (Years) is 5.11 years, but this debt ratio is a bit too high as I would prefer it to be 3 to 4 years.
The Liquidity Ratio for 2020 is good at 1.90. The Debt Ratio is also good at 1.55. The Leverage and Debt/Equity Ratios are fine at 2.83 and 1.83 respectively.
The Total Return per year is shown below for years of 5 to 32 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 | 11.95% | 4.47% | 0.44% | 4.03% |
| 2010 | 10 | 12.63% | 5.39% | 2.12% | 3.27% |
| 2005 | 15 | 10.68% | 7.18% | 4.12% | 3.06% |
| 2000 | 20 | 10.65% | 9.04% | 5.90% | 3.15% |
| 1995 | 25 | 12.58% | 12.35% | 8.55% | 3.80% |
| 1990 | 30 | 11.88% | 12.09% | 8.68% | 3.40% |
| 1988 | 32 | 11.73% | 13.44% | 9.66% | 3.78% |
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 11.82, 13.81 and 15.44. The corresponding historical ratios are 8.94, 10.49 and 12.05. The current P/E Ratio 14.40 based on a stock price of $42.77 and EPS estimate for 2021 of $2.97. This ratio is between the median and high 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $48.59. The 10 year low, median, and high median Price/Graham Price Ratios are 0.78, 0.96 and 1.10. The current P/GP Ratio is 0.88 based on a stock price of $42.77. The current ratio is between the low and median 10 year median ratio. 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 1.21 based on a stock price of $42.77, Book Value of $4,039M, and Book Value per Share of $35.33. The current ratio is 18% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 2.76. The current P/CF Ratio is 2.62 based on Cash Flow per Share estimate for 2021 of $16.30, Cash Flow of $1,864M and a stock price of $42.77. The current ratio is 5% below the 10 year median 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 4.19% based on dividends of $1.79 and a stock price of $42.77. The current yield is 96% 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 2.55%. The current dividend yield is 4.19% based on dividends of $1.79 and a stock price of $42.77. The current yield is 65% 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 1.17. The current P/S Ratio is 1.15 based on Revenue estimate fore 2021 of $4,469M, Revenue per Share of $37.29 and a stock price of $42.77. The current ratio is 2% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable and below the median. The dividend yield tests show the stock price as cheap, but the P/S Ratio test does not confirm this and shows the stock price as reasonable and below the median. Most of the rest of the testing shows that the stock price is reasonable and below the median.
Is it a good company at a reasonable price? The stock price would seem to be relatively reasonable and below the median. I have Canadian Utilities, so I would not buy this stock as ATCO owns a significant portion of the Canadian Utilities stock. I have some concerns on this stock. The first is the high DPR for EPS. The second concern is that the company’s debt is more than twice as high as the company’s market cap. The problem seems to be that the market is not valuing the company’s hard assets at the same level as the company is. You have to wonder about this.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (2), Hold (3) and Sell (1). You very seldom ever see a sell recommendation. The consensus would be a Hold. The 12 stock price consensus is $46.88. This implies a total return of $13.80% with 9.61% from capital gains and 4.19% from dividends.
Analysts on Stock Chase like this company and think it is a buy. Christopher Liew on Motley Fool talks about this company and Suncor building a world-scale clean hydrogen facility. The executive summary on Simply Wall Street gives this stock 4 stars out of 5 an lists 3 risks. A writer on Simply Wall Street says now may not be the most optimal time to buy, given it is trading around industry price multiples. A writer on Simply Wall Street thinks the company’s growing dividend and conservative payout ratios are a good combination.
Atco Ltd is a Canadian holding company that offers gas, electric, and infrastructure solutions. It generates maximum revenue from the Utilities segment. Geographically, it derives a majority of revenue from Canada. 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 Friday, August 27, 2021 around 5 pm. Tomorrow on my other blog I will write about Foreign Investing.... learn more on Thursday, August 26, 2021 around 5 pm.
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