I do not own this stock of Keyera Corp (TSX-KEY, OTC-KEYUF). I started to review some of the stock recommended by Jennifer Dowty from a column she wrote and I reviewed in February 2010 on Dividends and Special Dividends. The title of the article in Investor’s Digest was Dividend Stocks: Buy, Hold and Collect. Jennifer is now a Portfolio Manager for Manulife Asset Management Limited.
When I was updating my spreadsheet, I noticed EPS was down 86% and was expected to be down 49%. Reason is higher expenses, especially impairment expenses. The EPS is expected to improve this year. By 514%. The EPS is up 54% for the second quarter of 2021.
The dividend yields are good with dividend growth low. The current dividend yield is good (5% to 6% ranges) at 6.09%. The 5 and historical median dividend yields are also good at 5.41%, and 5.68%. The 10 median dividend yield is moderate (2% to 4% ranges) at 4.37%. The dividend growth is low (below 8%) at 6.56% per year for the last 5 years. The last dividend increase was in 2020 and it was for 6.7%. There has been no increase so far in 2021. In past years, there have been increases in September each year.
The Dividend Payout Ratios (DPR) need improving. The DPR for EPS for 2020 is 686% with 5 year coverage at 124%. Analysts expect the DPR for EPS to be above 100% over the next three years. The DPR for EPS for 2021 is expected to be 112%. The DPR for CFPS for 2020 is 52% with 5 year coverage at 53%. I prefer this DPR to be at 40% or less. Analysts expect this DPR to be just under 50% over the next three years. The DPR for Free Cash Flow (FCF) for 2020 is 440%. The 5 year coverage is not calculable because of negative FCF in the past. The DPR for FCF for 2021 is expected to be 105% and then falling to 99% in 2022.
Debt Ratios are fine. The Long Term Debt/Market Cap for 2020 is 0.59 and falling to 0.47 in the second quarter of 2021. The Liquidity Ratio for 2020 is 1.30. If you add in cash flow after dividends it is 1.82 and fine. The Debt Ratio is good at 1.58. The Leverage and Debt/Equity Ratios are 2.74 and 1.74 and are fine.
The Total Return per year is shown below for years of 5 to 17 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 | 6.56% | -5.45% | -10.89% | 5.45% |
| 2010 | 10 | 7.87% | 9.55% | 2.56% | 7.00% |
| 2005 | 15 | 7.49% | 12.59% | 5.00% | 7.58% |
| 2002 | 17 | 12.17% | 18.71% | 8.75% | 9.96% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 23.26, 25.42 and 27.58. The corresponding 10 year ratios are 23.05, 27.59 and 32.07. The corresponding historical ratios are 18.79, 22.58 and 26.37. The current P/E Ratio is 18.32 based on a stock price of $31.51 and EPS estimate for 2021 of $1.72. The current ratio is below the 10 year median low ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $21.74. The 10 year low, median, and high median Price/Graham Price Ratios are 1.77, 2.22 and 2.55. The current P/GP Ratio is 1.45 based on a stock price of $31.51. The current ratio is below the 10 year median low ratio. 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 3.86. The current ratio is 2.58 based on a Book Value of $2,701M, Book Value per Share of $12.22 and a stock price of $31.51. The current ratio is 33% 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 13.07. The current P/CF Ratio is 8.16 based on Cash Flow per Share estimate for 2021 of $3.86, Cash Flow of $853M and a stock price of $31.51. The current ratio is 38% below the 10 year median ratio. This stock price testing suggests that the stock price is cheap.
I get an historical median dividend yield of 5.68%. The current dividend yield is 6.09% based on Dividends of $1.92 and a stock price of $31.51. The current dividend yield is 7% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 4.37%. The current dividend yield is 6.09% based on Dividends of $1.92 and a stock price of $31.51. The current dividend yield is 40% above the 10 year dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 1.79. The current P/S Ratio is 1.56 based on a stock price of $31.51, Revenue estimate for 2021 of $4,468M, and Revenue per Share of $20.22. The current ratio is 13% 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 could be reasonable. The dividend yield testing says the stock is reasonable to cheap. The P/S Ratio testing says the stock price is reasonable. The rest of the testing is saying the stock is cheap, but a lot of these ratios are quite high. For example, the P/B Ratio of 2.58 is rather high. Generally, a P/B Ratio of 1.50 is considered reasonable.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that the P/E Ratios is lower than for good yields in the past and this is a positive. The P/S Ratio is higher today that for the good yields in the past and this is a negative. However, the current P/S Ratio is closer to the 10 year beginning P/S Ratio than the 5 year beginning P/S Ratio.
The beginning dividend yields for good returns is lower than the current dividend yield and this is a positive. However, the problem with the current high yield is that it is unaffordable, but the company is holding the dividends at the current rate.
In the following chart the total return for the 10 years to December 31, 2020 is 9.55% per year. The beginning yield was at 5.12%, and the P/E Ratio and the P/S Ratio were at 19.42 and 1.26. Does this chart change my opinion of the stock price? This chart is just another way of looking at the stock price and seems to indicate that the price could reasonable.
| # Years | Total Ret | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | -5.45% | 33.83 | 2.74 | 3.47% |
| 10 | 9.55% | 19.42 | 1.26 | 5.12% |
| 15 | 12.59% | 22.66 | 1.10 | 5.98% |
| 18 | 18.71% | |||
| current | 18.32 | 1.56 | 6.09% |
Is it a good company at a reasonable price? The price could be reasonable. This is a pipeline stock, so it is into oil and gas energy. The problem with any stock in the oil and gas industry is the current push towards renewable energy. It is hard to know how long the transition to renewables will take, but usually such transitions take a long time. Longer than you might imagine. I would not be surprised if it took 20 years. Currently I am not exiting my pipeline stocks. This stock was also an income trust in the past and it has been a difficult transition from income trust to a corporation for most income trusts. Dividends have been a problem to get under control for all old income trusts stocks. However, this stock should do well in the near future.
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (5), and Hold (6). The consensus would be a Buy. The 12 month stock price consensus is $34.87. This implies a total return of 16.76% with 10.66% from capital gains and 6.09% from dividends.
Last year when I look at analysts’ recommendations, I found Strong Buy (6), Buy (11) and Hold (2). The consensus would be a Buy. The 12 month stock price consensus is $26.74. This implies a total return of 51.56% with 41.41% from capital gains and 10.15% from dividends. What happened is that the stock price is one year later is at $31.51 for a total return of 76.78% with 66.63% from capital gains and 10.15% from dividends. Last year I thought the stock price was cheap.
Analysts on Stock Chase mainly say it is a buy, but they are also cautious. Rajiv Nanjapla on Motley Fool says this company has an attractive valuation and healthy growth prospects and is a Buy. The Executive Summary on Simply Wall Street lists 5 risks and gives this stock 3 stars out of 5. A writer on Simply Wall Street says this stock has a fair value of $37.74 CDN$. A Writer on Simply Wall Street is worried about the high payout ratios for dividends.
Keyera operates as a midstream energy business in western Canada. Its primary operations consist of gathering, processing, and fractionation of natural gas in western Canada; storage and transportation of crude oil and natural gas byproducts; and marketing of natural gas liquids. The company operates over 5,000 kilometers of gathering pipelines and 15 natural gas processing plants. Its web site is here Keyera Corp.
The last stock I wrote about was about was Titanium Transportation Group Inc (TSX-TRR, OTC-PVVTF) ... learn more. The next stock I will write about will be Cenovus Energy Inc (TSX-CVE, NYSE-CVE) ... learn more on Monday, November 1, 2021 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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