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 that EPS is expected to be much lower in 2021. That is because the company has taken an impairment charge. The EPS in the past has been quite volatile. Also, Revenue is lower, but expenses are up in the first 9 months of 2021.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% range) at 3.06%. The 5 year median dividend yield is also moderate at 4.80%. The 10 year median dividend yield is good (5% and 6% ranges) at 5.62%. The historical median dividend yield is high (at or above 7% range) at 7.60%. This used to be an income trust company and it changed to a corporation in 2009. The historical median dividend yield since 2009 is good at 6.18%. Income Trust companies had much higher dividends than corporations and also much higher dividend yields.
The dividend growth over the past 5 years is low (under 8%) at just 2.13% per year. However, there was just one dividend increase in the past 5 years and that was in 2008 and it was for 11.1%. Companies have a hard time increasing dividends when they go from Income Trusts to Corporations. This company only had 8 increases in the past 23 years and they decreased the dividends twice. Analysts expect perhaps a small dividend increase in 2023.
The Dividend Payout Ratios (DPR) are improving. The DPR for EPS for 2020 is 69% with 5 year coverage at 90%. They are making an effort to get their DPR for EPS under control, but it is still quite high. The DPR for CFPS for 2020 is 18% with 5 year coverage at 20%. This is a good rate. The DPR for Free Cash Flow for 2020 is 20% with 5 year coverage at 62%. However, none of the sites I looked at agree on what the FCF is and the disagreement on this figure is big.
Debt Ratios are need improving. The Long Term Debt/Market Cap Ratio for 2020 is 0.76. This is the first time it is below 1.00 since I started to look at it 6 years ago. The ratio for the third quarter is higher at 0.83. The Liquidity Ratio for 2020 is low at 1.02. If you had in cash flow after dividends it is 2.03 and this is fine. The Debt Ratio is low at 1.21. I prefer this to be at 1.50 or higher. The Leverage and Debt/Equity Ratios for 2020 are 5.69 and 4.69. I prefer these to be under 3.00 and under 2.00, respectively.
The Total Return per year is shown below for years of 5 to 23 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 | 2.13% | 24.05% | 19.60% | 4.45% |
| 2010 | 10 | 1.06% | 16.01% | 11.30% | 4.71% |
| 2005 | 15 | 1.04% | 12.60% | 7.75% | 4.86% |
| 2000 | 20 | 1.12% | 15.73% | 8.55% | 7.18% |
| 1997 | 23 | 3.06% | 13.11% | 6.83% | 6.28% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 13.68, 19.14 and 26.46. The corresponding 10 year ratios are 12.45, 15.26 and 14.14. The corresponding historical ratios are 13.13, 15.65 and 17.89. The current P/E Ratio is 47.28 based on a stock price of $39.24 and EPS estimate for 2021 of $0.83. This stock price testing suggests that the stock price is relatively expensive. Note that the P/E Ratios look sort of normal, but they are they way because there was a lot of negative P/E Ratios.
The EPS estimate for 2021 is a drop in EPS from 2020 of 53%. There is this drop because of an impairment charge in 2021. The EPS estimate for 2022 is more reasonable at $1.52. With a stock price of $39.24, it produces a P/E Ratio for 2022 of 25.82. However, this is above the high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. The P/E Ratio for 2023 is not of any help as it is also high at 24.68.
I get a Graham Price of $14.26. The 10 year low, median, and high median Price/Graham Price Ratios are 1.93, 2.20 and 2.69. The P/GP Ratio for 2021 is 2.75 based on a stock price of $39.24. This P/GP Ratio is above the 10 year median high ratio. This stock price testing suggests that the stock price is relatively expensive.
The P/GP Ratio is affected by the EPS. The Graham Price for 2022 is higher at 19.30. The P/GP Ratio for 2022 is 2.03. This is between the low and median 10 year median P/GP Ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median. However, the P/GP Ratios for this stock are quite high. You normally expect 10 year median P/GP Ratios to be 90, 1.00, 1.15 or something like that. Basically, it is recommended that you do not buy stocks with P/GP Ratios about 1.15 or 1.20 and a stock with a ratio below 1.00 is considered cheap.
I get a 10 year median Price/Book Value per Share Ratio of 5.01. The current P/B Ratio is 3.60 based on a Book Value of $2,202M, Book Value per Share of $10.89 and a stock price of $39.24. The current ratio is 28% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. However, the current ratio is high at 3.60 and the 10 year median ratio is very high at 5.01. A good P/B Ratio is around 1.50.
I get a 10 year median Price/Cash Flow per Share Ratio of 6.01. The current P/CF Ratio is 7.80 based on Cash Flow per Share estimate for 2021 of $5.03 and a stock price of $39.24. The current ratio is 30% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 7.60%. The current dividend yield is 3.06% based on a stock price of $39.24 and dividends of $1.20. The current yield is 60% 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 5.62%. The current dividend yield is 3.06% based on a stock price of $39.24 and dividends of $1.20. The current yield is 46% below the 10 year dividend yield. This stock price testing suggests that the stock price is relatively expensive. These dividend yield tests do not work that well on stocks that used to be Income Trusts. That is because Income Trusts could have much higher dividends (and therefore much high dividend yields) than corporations.
The 10 year median Price/Sales (Revenue) Ratio is 3.30. The current P/S Ratio is 3.93 based on Revenue estimate for 2021 of $2,019, Revenue per Share of $9.99 and a stock price of $39.24. The current ratio is 19% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. It is very close to expensive.
Results of stock price testing is that the stock price is that the stock price is probably expensive. The P/S Ratio test shows that it is very close to expensive as expensive would be a current ratio 20% above the 10 year median ratio and it tested at 19%. Most, but not all testing is showing the stock price as relatively expensive. The ratios on this stock are above normal. Look at the 10 year median P/B Ratio at 5.01 when a more normal P/B Ratio would be 1.50.
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 beginning P/S Ratios for good returns are higher than today. The P/E Ratios are mixed and the Dividend Yields are higher in the past.
In the following chart the total return for the 10 years to December 31, 2020 is 16.01% per year. The beginning yield was at 6.90%, and the P/E Ratio and the P/S Ratio were at 313.20 and 5.26. Does this chart change my opinion of the stock price? The P/S Ratio test looks the best and it does show that a relatively low current P/S Ratio. So, stock might be reasonable.
| # Years | Total Ret | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 24.05% | -266.57 | 4.37 | 5.79% |
| 10 | 16.01% | 313.20 | 5.26 | 6.90% |
| 15 | 12.60% | 17.14 | 5.75 | 6.89% |
| 20 | 15.73% | 14.27 | 4.43 | 10.85% |
| 23 | 13.11% | 43.48 | 7.97 | 6.00% |
| current | 47.28 | 3.93 | 3.06% |
Is it a good company at a reasonable price? I think that the stock price is rather expensive. Also, for a utility, this company has unusually high ratios. However, I must admit that shareholders have done very well in capital gains on this stock. Investors seem to be betting that the future for this company is very bright.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (5) and Hold (3). The consensus is a Strong Buy. The 12 month stock price consensus is $48.55. This implies a total return of 26.78% with 23.73% from capital gains and 3.06% from dividends.
Analysts on Stock Chase think that this company is a buy. Chris MacDonald on Motley Fool likes the company for its green assets. The Executive Summary on Simply Wall Street gives this stock 3 stars out of 5 and list 4 risks. A writer on Simply Wall Street says the ROE for this company is at its industry normal level. A writer on Simply Wall Street thinks the company can handle its debt because of it FCF. The company reports on its third quarterly results on Globe Newswire.
Northland Power Inc is a Toronto-based renewable energy company that develops, builds, owns, and operates the infrastructure for sustainable power production. Its offshore wind operations are located in Germany and the Netherlands, while the efficient natural gas and other onshore renewable operations are located predominantly in Ontario, Canada. The company plans to expand operation in the Baltics and North America with the acquisitions of offshore wind projects located in the Baltic Sea and offshore New York state, respectively. 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 FirstService Corp (TSX-FSV, NASDAQ-FSV) ... learn more on Wednesday, November 24, 2021 around 5 pm. Tomorrow on my other blog I will write about Rule of 30 .... learn more on Tuesday, November 23, 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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