Is it a good company at a reasonable price? I still like this company and I will continue to hold my shares. I generally like utility stocks for their stolid dividends and increases above inflation. However, the stock price for this utility maybe getting on the expensive side at the moment.
I own this stock of TC Energy Corp (TSX-TRP, NYSE-TRP). I bought the stock in 2000 at an opportune time. The company had been cutting their dividend payments in order to re-organize and get the company into shape for long term profitability. This company’s stock fell hard because of this. People who depend on dividends for their income can be an unforgiving lot and can get really upset at company when a trusted company cuts its dividends.
When I was updating my spreadsheet, I noticed that Adjusted EPS went up from $4.20 to $4.27, but EPS went down from $4.74 to $1.86. this seems to be due to an impairment charge in 2021. I have owned this stock since 2000 and have bought more since. My total return is 10.55% per year with 5.44% from capital gains and 5.11% from dividends.
If you had invested in this company in December 2011, $1,024.19 you would have bought 23 shares at $44.53 per share. In December 2021, after 10 years you would have received $562.01 in dividends. The stock would be worth $1,353.09. Your total return would have been $1,915.10.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $44.53 | $1,024.19 | 23 | 10 | $562.01 | $1,353.09 | $1,915.10 |
The dividend yields are good with dividend growth currently moderate. The current dividend yield is good (5% to 6% ranges) at 5.01%. The 5 year dividend yield is also good at 5.00%. But these yields are just inside the good range. The 10 year and historical median dividend growth is moderate (2% to 4% ranges) at 4.19% and 4.31%. The dividend growth over the past 5 years has been moderate (8% to 14% ranges) at 8.64% per year. However, dividend yields prior to the last 5 years were low (under 8%). The last dividend increase was in 2022 and it was for 3.45%. It is only between 2016 and 2020 that the dividend growth is above 8%.
The Dividend Payout Ratios (DPR) need to improve. The DPR for EPS for 2021 is 184% with 5 year coverage at 81%. This stock also gives out an Adjusted EPS and that’s DPR for 2021 is 80% with 5 year coverage at 75%. The DPR for Cash Flow per Share for 2021 is 47% with 5 year coverage at 41%. I like to see the last DPRs for CFPS at 40% or less. The DPR for Free Cash Flow for 2021 is 309% with 5 year coverage not calculable because of negative FCF. There is disagreement on what the FCF is, but other calculations do not help the DPRs.
Debt Ratios are could be improved, but unfortunately, utilities companies tend to have a lot of debt. The Long Term Debt/Market Cap Ratio is 0.65 and is good. The debt ratio is a bit low at 1.47. The 5 year median ratio is also 1.47. I prefer this to be 1.50 or better. The Leverage and Debt/Equity Ratios are a bit high at 3.12 and 2.12. I prefer them to be at below 3.00 and below 2.00.
The Liquidity Ratio is too low at 0.57. This means that current assets cannot cover current liabilities. Even adding in Cash Flow after Dividends, this ratio is just 0.61. If you add back the current portion of Long Term Debt and Notes Payables, the ratio is still low at 1.13. I prefer it to be at 1.50 or better. However, the Assets/Current Liabilities Ratio is quite good at 7.99. This means that they have lots of assets to cover their current liabilities. Problem can occur if they need cash when it is not easy to get (like in a recessionary period).
The Total Return per year is shown below for years of 5 to 33 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 8.64% | 4.30% | -0.57% | 4.87% |
| 2011 | 10 | 7.50% | 7.50% | 2.82% | 4.68% |
| 2006 | 15 | 6.77% | 6.67% | 2.50% | 4.17% |
| 2001 | 20 | 6.90% | 10.86% | 5.59% | 5.27% |
| 1996 | 25 | 4.64% | 7.88% | 3.65% | 4.23% |
| 1991 | 30 | 5.28% | 8.74% | 4.12% | 4.62% |
| 1988 | 33 | 5.02% | 9.44% | 4.50% | 4.93% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.34, 13.95 and 16.48. The corresponding 10 year ratios are 17.80, 18.85 and 19.91. The corresponding historical ratios are 12.31, 13.99 and 16.04. The current P/E Ratio is 16.56 based on a stock price of $71.85 and EPS for 2022 of $4.34. The current ratio is below the low of the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $54.45. The 10 year low, median, and high median Price/Graham Price Ratios are 1.27, 1.45 and 1.53. The current P/GP Ratio is 1.32 based on a stock price of $71.85. The current ratio is between the low and the median ratios of the 10 year median ratios. 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 2.11. The current P/B Ratio is 2.37 based on a Book Value of $29,784M, Book Value per Share of $30.37 and a stock price of $71.85. The current ratio is 12% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Analysts have put out an estimate for the Book Value per Share for 2022 and it is $30.80. Based on this BVPS estimate, Book Value of $30,209M and a stock price of $71.85, I get a P/B Ratio of 2.33. This P/B Ratio is 11% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 6.84. The current P/CF Ratio is 10.09 based on Cash Flow per Share estimate for 2022 of $7.12, Cash Flow of $6,983M and stock price of $71.85. The current ratio is 17% 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 4.31%. The current dividend yield is 5.01% based on a stock price of $71.85 and Dividends of $3.60. The current yield is 16% above the historical median 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 4.19%. The current dividend yield is 5.01% based on a stock price of $71.85 and Dividends of $3.60. The current yield is 19.6% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 3.85. The current P/S Ratio is 4.79 based on Revenue estimate for 2022 of $14,722, Revenue per Share of $15.01 and a stock price of $71.85. The current ratio is 24% 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 on the expensive side but could still be reasonable. There is a divergence between the testing on dividend yield is P/S Ratio. Dividend yield tests say the stock price is reasonable and below the median and P/S Ratio test says the stock price is expensive. A number of the test show the stock price being reasonable but above the median, like the P/CF Ratio test.
There is a reason, and there generally is, why there is divergence between the dividend yield test and the P/S Ratio test. Although Revenue has been increasing, Revenue per Share has not. Revenue per Share is down by 1.2% per year over the past 5 years and only up by 0.5% per year over the past 10 years. This is because number of outstanding shares is increasing.
Last year I had tests results from stock price testing of a stock price that was probably reasonable and maybe cheap. The dividend yield tests are showing the stock price as cheap, but the P/S Ratio test does not confirm that and suggests that the stock price is reasonable and a bit above the median. So, we had a relatively cheaper stock price last year than this year.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (5), Hold (16) and Underperform (2). The consensus is Hold. The consensus 12 month stock price is $68.89 (with a range from $56.00 to $79.00). A 12 month stock price of $68.89 implies a total return of 2.28% with a capital loss of 2.73% and dividends of $5.01 based on a current stock price of $71.85.
When I look at analysts’ recommendations last year, I found Strong Buy (7), Buy (11) and Hold (5). The consensus was a Buy. The 12 month stock price consensus was $68.32. This implies a total return of 19.27% with 13.49% from capital gains and 5.78% from dividends based on a current stock price of $60.20. What happened was a total return of 25.13% with 19.35% from capital gains and 5.78% from dividends based on a stock rise from $60.20 to $71.85. So, there stock estimate was pretty good.
Analysts on Stock Chase seem to like this stock but think it is expensive. Stock Chase gives this stock 5 stars out of 5. Adam Othman on Motley Fool thinks you should buy this stock for its passive dividend income and because it has raised it dividends for the past 22 years. Sneha Nahata on Motley Fool thinks this is a low risk stock for your retirement portfolio. In a News Release the company talks about their fourth quarter results. Simply Wall Street on Yahoo Finance talks about who owns this company.
The risks by Simply Wall Street are debt is not well covered by operating cash flow, dividend of 5.23% is not well covered by earnings or forecast to be in the next 3 years, large one-off items impacting financial results, Profit margins (13.6%) are lower than last year (34.3%) and substantial insider selling in the past 3 months. It would take 5 years to pay off debt by cash flow and 3 years is ideal, so not that bad. Insider selling is not really selling, as officers are not picking up stock options, and also, CEO and CFO have increased their shares in past year. The Adjusted EPS is to look at EPS without large one-off items and can cover dividends. I just like to look at things closer.
TC Energy operates natural gas, oil, and power generation assets in Canada and the United States. Its web site is here TC Energy Corp.
The last stock I wrote about was about was TransAlta Corp (TSX-TA, NSYE-TAC) ... learn more. The next stock I will write about will be AltaGas Ltd (TSX-ALA, OTC-ATGFF) ... learn more on Wednesday, March 30, 2022 around 5 pm. Tomorrow on my other blog I will write about Value Investors.... learn more on Tuesday, March 29, 2022 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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