Is it a good company at a reasonable price? This is a resource stock, so it is risky and cyclical. You could buy it for diversification reasons or buy it for passive dividends or buy it relatively cheap and sell it relatively high for capital gains. The company has been around for some 26 years. It has paid dividends for 26 years. Most old income trust companies had to cut dividends as this stock did. Recently the dividends have been raised. It is certainly selling at a reasonable price and it may even be selling cheap.
I do not own this stock of ARC Resources Ltd (TSX-ARX, OTC-AETUF). When TFSA first came out, this stock was recommended for this account as it was an income trust at that point and most of the distributions were taxable. This stock is no longer an income trust and the distributions are now dividends and taxed as normal Canadian dividends.
When I was updating my spreadsheet, I noticed that analyst switched from following Revenue before Royalties to Net Revenue. Sometimes this happens and I generally go back and try to reconstruct what Revenue would be in the past based on the new way of looking at revenue.
If you had invested in this company in December 2012, for $1,002.04 you would have bought 41 shares at $24.44 per share. In December 2022, after 10 years you would have received $288.07 in dividends. The stock would be worth $748.25. Your total return would have been $1,036.32. This can be a benefit of dividend stock, where in this case you would not have lost money due to dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $24.44 | $1,002.04 | 41 | 10 | $288.07 | $748.25 | $1,036.32 |
The dividend yields are moderate with dividend going from being cut to being increased. The current dividend yield is moderate (2% to 4% ranges) at 4.05%. The 5 and 10 year median dividend yields are moderate at 4.38% and 4.27%. The historical median dividend yield is high (7% and above) at 7.73%.
Dividends were either flat or cut from 2009. To the end of 2022, dividends were cut by 6% per year over the past 5 years. Dividends were raised 10% in 2021, then raised 51.5% in 2022, half way through 2022 they were raised another 20% and then another 25% in 2023. Current dividends are still 77.5% below the dividends of 2008. What complicates things is that this company used to be an income trust and income trusts had very high yields. Most old income trust companies had to cut dividends or keep them flat for a long time to bring them in line with those for a corporation.
The Dividend Payout Ratios (DPR) are good. The DPR for 2022 for EPS is 13% with 5 year coverage at 58%. The DPR for Funds from Operations (FFO) for 2022 is 8% with 5 year coverage at 14%. The DPR for Cash Flow per Share (CFPS) for 2022 is 7% with 5 year coverage at 14%. The DPR for 2022 for Free Cash Flow (FCF) is 6% with 5 year coverage at 21%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio is 0.09 and is low and good. The Liquidity Ratio is low at 0.57, but if you add in Cash Flow after dividends, it is good at 2.65. The Debt Ratio is good at 2.34. The Leverage and Debt/Equity Ratios are good at 1.75 and 0.75.
The Total Return per year is shown below for years of 5 to 26 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | -6.01% | 7.07% | 4.35% | 2.72% |
| 2012 | 10 | -9.55% | 0.40% | -2.88% | 3.28% |
| 2007 | 15 | -10.69% | 4.78% | -0.74% | 5.52% |
| 2002 | 20 | -6.13% | 14.30% | 2.08% | 12.22% |
| 1997 | 25 | -4.52% | 16.45% | 2.31% | 14.14% |
| 1996 | 26 | -4.89% | 12.77% | 1.36% | 11.41% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 3.42, 4.90 and 6.38. The corresponding 10 year ratios are 8.67, 12.20 and 15.73. The corresponding historical ratios are 9.69, 11.99 and 14.30. The current P/E Ratio is 4.69 based on a stock price of $14.81 and EPS estimate for 2023 of $3.16. The current ratio is below the low ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $27.60. The 10-year low, median, and high median Price/Graham Price Ratios are 0.76, 1.07 and 1.38. The current P/GP Ratio is 0.54 based on a stock price of $14.81. The current ratio is below the low ratio of the 10 year median ratios. 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 1.68. The current P/B Ratio is 1.38 based on a stock price of $14.81, Book Value of $6,654M, and Book Value per Share of $10.72. 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 0.57. The current ratio is 0.43 based on a stock price of $14.81, Cash Flow of $3,272M, and Cash Flow per Share estimate for 2022 of $5.27. The current ratio is 24% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 7.73%. The current dividend yield is 4.05% based on dividends of $0.60 and a stock price of $14.81. The current yield is 48% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. However, this stock used to be an income trust and income trusts could have much higher dividends than corporations.
I get a 10 median dividend yield of 4.27%. The current dividend yield is 4.05% based on dividends of $0.60 and a stock price of $14.81. The current yield is 5% below the historical 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 3.70. The current P/S Ratio is 1.56 based on Revenue estimate for 2023 of $5,913M, Revenue per Share of $9.52 and a stock price of $14.81. The current ratio is 58% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is certainly reasonable and may even be cheap. The dividend yield test for the past 10 years says the stock price is reasonable and the P/S Ratio test says it is cheap. When I look at the other testing, the stock price looks cheap expect for the P/B Ratio test which says the stock price is reasonable.
The problem with the dividend yield test is that it works best on dividend growth stock and this stock has been cutting dividends until 2021 when it began to raise them again. The stock also used to be a income trust company and these companies can pay much higher dividends than corporations.
When I look at analysts’ recommendations, I find Strong Buy (6) and Buy (10) recommendations. The consensus would be a Strong Buy. The 12 months stock price consensus is $23.47. This implies a total return of $62.53% with 58.47% from capital gains and 4.05% from dividends.
Last year, when I look at analysts’ recommendations, I found Strong Buy (6), and Buy (9). The consensus was a Strong Buy. The 12 month stock price was $19.93. This implies a total return of 33.40% with 30.77% from capital gains and 2.62% from dividends based on a stock price of $15.24. What happened was that the stock price dropped some 25.69%, so there was a loss of 22.77% with the capital loss of 25.69% and dividends of 2.92%.
All the recommendations for 2023 on Stock Chase is Top Pick or Past Top Pick. Stock Chase gives this stock 5 stars out of 5. It is on Money Sense list with a B rating. Vineet Kulkarni on Motley Fool thinks this stock has limited downside, but it is risky. Vineet Kulkarni on Motley Fool thinks the dropping price of this company makes it a buying opportunity. The company via Newswire put out a press release on their fourth quarter of 2022.
A report from Simply Wall Street via Yahoo Finance says they feel that the company’s performance has been good, but they have reservations. Simply Wall Street gives this stock 4 stars out of 5 and list two warnings of earnings are forecast to decline by an average of 7.4% per year for the next 3 years; and unstable dividend track record.
ARC Resources is an independent energy company engaged in the acquisition, exploration, development, and production of conventional oil and natural gas in Western Canada. The company produces light, medium, and heavy crude, condensate, natural gas liquids, and natural gas. Its web site is here ARC Resources Ltd.
The last stock I wrote about was about was Intact Financial Corp (TSX-IFC, OTC-IFCZF) ... learn more. The next stock I will write about will be Manulife Financial Corp (TSX-MFC, NYSE-MFC) ... learn more on Wednesday, February 22, 2023 around 5 pm. Tomorrow on my other blog I will write about Banks and Ratios 2.... learn more on Tuesday, February 21, 2023 around 5 pm.
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