Is it a good company at a reasonable price? The stock price is reasonable. The total return over the past 15 years is not reaching 8% and I think that is a reasonable expectation for a utility. (And, by the way, Canadian Utilities is not reaching that mark either.) The dividend yield has been over 3% for the past 5 years and this is good. All dividend portfolios should have at least one utility stock. However, there are lots to chose from.
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 was on Mike Higgs’ list. ATCO (TSX-ACO-X) owns 52.3% (2021) Canadian Utilities (TSX-CU), so you would not buy both these stocks.
When I was updating my spreadsheet, I noticed analysts expect a big rise in EPS of some 35%. Instead, EPS went down slightly by 2.3%. The estimates for 2022 and 2023 for Revenue were $4,264M, and $4,495M last year. Estimates now for 2022 and 2023 are much higher at $4,970 and $4,858. EPS estimates have also gone up for 2022 and 2023 which in 2021 were $2.97, and $3.17 and now they are $3.54, and $3.44.
If you had invested in this company in December 2011, $1,024.08 you would have bought 34 shares at $30.12 per share. In December 2021, after 10 years you would have received $420.40 in dividends. The stock would be worth $1,451.80. Your total return would have been $1,872.20.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $30.12 | $1,024.08 | 34 | 10 | $420.40 | $1,451.80 | $1,872.20 |
The dividend yields are moderate with dividend growth moderate. The current dividend yield is moderate (2% to 4% ranges) at 3.90%. The 5, 10 and historical dividend yields are also moderate at 3.76%, 2.72% and 2.15%. The dividends have increased by 9.5% per year over the past 5 years. However, the dividend increases have been lower lately, with the last dividend increase in 2022 at 2.99% and the one for 2021 at 3.01%. Dividend Payout Ratios is relatively high in 2021, so recent lower increases.
The Dividend Payout Ratios (DPR) are fine, as they are expected to go lower. The DPR for EPS for 2021 is 83% with 5 year coverage at 59%. It is expected to decrease to 52% in 2022. For Adjust Earnings per Share (AEPS), the DPR for 2021 is $54% with 5 year coverage at 51%. The DPR for Cash Flow per Share (CFPS) for 2021 is 11% with 5 year coverage at 10%. The DPR for Free Cash Flow (FCF) for 2021 is 40% with 5 year coverage at 63%. However, 3 sites I looked at varied greatly in what they say the FCF was.
Debt Ratios are probably fine. The Long Term Debt/Market Cap Ratio is 1.95. This is a utility and they always have lots of debt, but this ratio is very high. Note that the company says that they have Property, Plant and Equipment valued at $18,791 which is twice as high as the long term debt. Also, the Assets/Current Liabilities Ratio is high at 14.50. This means they have ample coverage of their current debt (it is just tided up in longer term assets).
The Liquidity Ratio is 1.40 and is lower that what I like as I like this to be at least 1.50. The Debt Ratio is good at 1.53. The Leverage and Debt/Equity Ratios are 2.89 and 1.89 and these are fine.
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 | 9.48% | 2.72% | -0.89% | 3.62% |
| 2011 | 10 | 12.14% | 6.89% | 3.55% | 3.34% |
| 2006 | 15 | 10.34% | 6.39% | 3.60% | 2.79% |
| 2001 | 20 | 10.14% | 9.89% | 6.69% | 3.19% |
| 1996 | 25 | 11.07% | 11.68% | 8.21% | 3.47% |
| 1991 | 30 | 11.99% | 12.79% | 9.26% | 3.53% |
| 1988 | 33 | 11.46% | 13.57% | 9.87% | 3.70% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 12.75, 18.82, 21.29. The corresponding 10 year ratios are 12.18, 14.07 and 16.21. The corresponding historical ratios are 8.99, 10.54 and 12.18. The current ratio is 13.39 based on a stock price of $47.41 and EPS estimate for 2022 of $3.54. The current ratio is between the low and the median of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I have Adjusted Earnings per Share data. The 5-year low, median, and high median Price/Earnings per Share Ratios are 11.37, 13.49 and 16.02. The corresponding 10 year ratios are 11.61, 13.41 and 15.89. The current P/AEPS Ratio is 13.09 based on a stock price of $47.41 and AEPS estimate for 2022 of $3.62. The current ratio is between the low and median ratio 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 Graham Price of $54.61. The 10-year low, median, and high median Price/Graham Price Ratios are 0.82, 0.99 and 1.10. The current P/GP Ratio is 0.87 based on a stock price of $47.41. The current ratio is between the low and 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 1.39. The current P/B Ratio is 1.27 based on stock price of $47.41, Book Value of 4,283M, and Book Value per Share of $37.44. The current ratio is 8.75% 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 2.47 based on a stock price of $47.41, Cash Flow per Share estimate for 2022 of $19.20, and Cash Flow of $2,196M. The current ratio is 11% 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 2.15%. The current dividend yield is 3.90% based on a stock price of $47.41 and dividends of $1.8468. The current dividend yield is 81% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median dividend yield of 2.72%. The current dividend yield is 3.90% based on a stock price of $47.41 and dividends of $1.8468. The current dividend yield is 43% above the historical median 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 ratio is 1.09 based on a stock price of $47.41, Revenue estimate for 2022 of $4,970M and Revenue per Share of $43.45. The current ratio is 7% 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. The dividend yield tests say it is cheap and the P/S Ratio test says it is reasonable and below the median. The other test believe shows the stock price as reasonable and below the median.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (2), Hold (3) and Sell (1). The recommendations are quite broad. Very different opinions about this stock. The consensus would be a Hold. The 12 month stock price consensus is $50.21. This implies a total return of 9.80% with 5.91% from capital gains and 3.90% from dividends.
Most analysts, but not all on Stock Chase like this stock. One analyst says it is a good defensive stock. Stock Chase gives this stock 4 stars out of 5. It is on Money Sense list with a B rating. Kay Ng Motley Fool talks about why you should invest in utilities like ACO. But this is an old entry. Motley Fool cannot access info on this stock, it seems. There is a more recent Motley Fool report by Christopher Liew on Yahoo Finance. The company on a Press Release talks about its fourth quarter. The company talks about on Newswire its second quarter of 2022 results.
Simply Wall Street report on Yahoo Finance likes that insider are buying shares. Simply Wall Street has two warnings on this stock of earnings are forecast to decline by an average of 8.3% per year for the next 3 years and interest payments are not well covered by earnings.
Atco Ltd is a Canadian holding company that offers gas, electric, and infrastructure solutions. The largest subsidiary of the company is Canadian utilities, which operates natural gas, electricity, and logistical services. It generates maximum revenue from the Utilities segment. Geographically, it derives most of its 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 Wednesday, August 31, 2022 around 5 pm. Tomorrow on my other blog I will write about Best Canadian Stocks for August 2022 .... learn more on Tuesday, August 30, 2022 around 5 pm.
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