Is it a good company at a reasonable price? There are a number of resource stocks on dividend lists. Personally, I do not like resource stocks and do not buy much of them. What I do not like is their volitivity and when I have bought them, it has been for the short term and I keep an eye on them. But analyst and some conservative investor like resource stocks. The testing of this stock as too price seems to point to a reasonable price, although I saw problems with some of my testing. This stock is below its last high reached in 2014.
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 it seems that timing is everything when buying this stock. It is a resource stock and so it is probably cyclical. It is interesting that the stock price 25 years ago and 5 years ago are close. See charts below.
If you had invested in this company in December 2013, for $1,005.38 you would have bought 34 shares at $29.57 per share. In December 2023, after 10 years you would have received $219.84 in dividends. The stock would be worth $668.78. Your total return would have been $888.62. This would be a total loss of 1.41% per year with 3.99% from capital loss and 2.58% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $29.57 | $1,005.38 | 34 | 10 | $219.84 | $668.78 | $888.62 |
If you had invested in this company in December 2018, for $1,004.40 you would have bought 124 shares at $8.10 per share. In December 2023, after 5 years you would have received $268.58 in dividends. The stock would be worth $2,439.08. Your total return would have been $2,707.66. This would be a total gain of 23.28% per year with 19.42% from capital gain and 3.86% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $8.10 | $1,004.40 | 124 | 5 | $268.58 | $2,439.08 | $2,707.66 |
If you had invested in this company in December 1998, for $1,000.40 you would have bought 164 shares at $6.10 per share. In December 2023, after 25 years you would have received $5,388.38 in dividends. The stock would be worth $3,225.888. Your total return would have been $8,614.26. This would be a total gain of 29.56% per year with 4.79% from capital gain and 24.77% from dividends. This company used to be a Income Trust and so had very high dividends when it was an Income Trust.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $6.10 | $1,000.40 | 164 | 25 | $5,388.38 | $3,225.88 | $8,614.26 |
The current dividend yield is moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 3.18%. The 5 and 10 year median dividend yields are moderate at 3.38% and 3.85%. The historical median dividend yield is high (7% and above) at 7.65%. This company used to be an income trust and so had high dividends, but all income trusts had to lower the dividends on becoming a corporation. All the old income trusts have had trouble getting the dividend level right. Over the past 5 years, dividends have increased by just 1.3%. However, in the last 5 years dividends have been cut and increased. The last dividend increase was for 13% and it was in 2023.
The Dividend Payout Ratios (DPR) are good. The DPR for 2023 for Earnings per Share (EPS) is good at 24% with 5 year coverage at 38%. The DPR for 2023 for The DPR for 2023 for Funds from Operations (FFO) is good at 15% with 5 year coverage at 12%. The DPR for 2023 for The DPR for 2023 for Free Funds Flow (FFF) is fine at 50% with 5 year coverage good at 28%. The DPR for 2023 for Cash Flow per Share (CFPS) is good at 14% with 5 year coverage at 12%. The DPR for 2023 for Free Cash Flow (FCF) is good at 33% with 5 year coverage at 18%.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 24.52% | 38.00% |
| FFO | 14.81% | 12.29% |
| FFF | 49.61% | 27.73% |
| CFPS | 14.47% | 12.20% |
| FCF | 33.05% | 17.69% |
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2023 is good at 0.10 and currently at 0.09. The Liquidity Ratio for 2023 is a low at 0.91 and 0.91 currently. If you added in Cash Flow after dividends, the ratios are fine at 2.96 and for 2024 estimate of 3.22. The Debt Ratio for 2023 is good at 2.50. The Leverage and Debt/Equity Ratios for 2023 are good at 1.67 and 0.67.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.10 | 0.09 |
| Intang/GW | 0.02 | 0.02 |
| Liquidity | 0.91 | 0.91 |
| Liq. + CF | 2.96 | 3.22 |
| Debt Ratio | 2.50 | 2.50 |
| Leverage | 1.67 | 1.67 |
| D/E Ratio | 0.67 | 0.67 |
The Total Return per year is shown below for years of 5 to 27 to the end of 2023. 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. |
|---|---|---|---|---|---|
| 2018 | 5 | 1.30% | 23.28% | 19.42% | 3.86% |
| 2012 | 10 | -6.09% | -1.41% | -3.99% | 2.58% |
| 2007 | 15 | -9.08% | 4.37% | -0.14% | 4.51% |
| 2002 | 20 | -5.04% | 11.61% | 1.65% | 9.96% |
| 1997 | 25 | -2.48% | 29.56% | 4.79% | 24.77% |
| 1996 | 27 | -3.38% | 12.76% | 1.59% | 11.17% |
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 5.12, 7.44 and 9.75. The corresponding historical ratios are 9.39, 11.89 and 13.95. The current P/E Ratio is 9.78 based on a stock price of $21.41 and EPS estimate for 2024 of $2.19. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I also have Funds from Operations (FFO) data. The 5-year low, median, and high median Price/ Funds from Operations Ratios are 2.12, 3.04 and 4.37. The corresponding 10 year ratios are 3.35, 4.72 and 6.10. The current ratio is 4.56 based on a stock price of $21.41 and FFO estimate for 2024 of $4.70. The current ratio is above the 10 year median high ratio. This stock price testing suggests that the stock price is relatively expensive.
I also have Free Funds Flow (FFF). The 5-year low, median, and high median Price/ Free Funds Flow Ratios are 3.47, 5.96 and 8.98. The corresponding 8 year ratios are 15.54, 22.33 and 29.12. The current ratio is 16.60 based on a stock price of $21.41 and FFF for last 12 months of $1.29. The current ratio is between the low and median ratios the 8 year median high ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $24.76. The 10-year low, median, and high median Price/Graham Price Ratios are 0.59, 0.84 and 1.09. The current P/GP Ratio is 0.86 based on a stock price of $21.41. This ratio is between the medina and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10-year median Price/Book Value per Share Ratio of 1.55. The current P/B Ratio is 1.72 based on a stock price of $21.41, Book Value of $7,428M and Book Value per Share of $12.44. The current 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 4.75. The current P/CF Ratio is 4.78 based on a stock price of $21.41, Cash Flow per Share estimate for 2024 of $4.48 and Cash Flow of $2,674M. The current ratio is .5% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but at the median.
I get an historical median dividend yield of 7.65%. The current dividend yield is 3.18% based on a dividend of $0.68 and a stock price of $21.41. The current dividend yield is 58% 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 trust have very high dividends. Also, this test works best for companies with increasing dividends and during the past while, dividends have been flat, decreased and increased. So, you have to wonder how good this test is.
I get an historical median dividend yield of 3.85%. The current dividend yield is 3.18% based on a dividend of $0.68 and a stock price of $21.41. The current dividend yield is 17% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median. However, this stock used to be an income trust and income trust have very high dividends. Also, this test works best for companies with increasing dividends and during the past while, dividends have been flat, decreased and increased. So, you have to wonder how good this test is.
The 10-year median Price/Sales (Revenue) Ratio is 2.91. The current ratio is 3.08 based on Revenue estimate for 2024 of $4,858M, Revenue per Share of $6.96 and a stock price of $21.41. The current ratio is 9.6% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. However, looking a revenue, sites seem to be changing what they are using as Revenue, from Commodity Sales, to Revenue from Commodity Sales to Total Revenue as shown on the financial statements.
Results of stock price testing is that the stock price could be reasonable. The 10 year dividend yield test says the stock price is reasonable as does the P/S Ratio test, even though I see problems with these tests. A number of the tests seems to point to a reasonable price.
When I look at analysts’ recommendations, I find Strong Buy (7) and Buy (8). The consensus is a Buy. The 12 month stock price consensus is $26.63 with a high of $32.00 and low of $25.00. The consensus price of $26.63 implies a total return of 27.56% with 24.38% from capital gains and 3.18% from dividends.
Analysts on Stock Chase like this company. Stock Chase gives this company 5 stars out of 5. It is on the Money Sense Dividend List. Amy Legate-Wolfe on Motley Fool thinks this is a good choice in the resource sector. Jitendra Parashar on Motley Fool thinks this is a good stock to buy and hold. The company put out a press release on Newswire about their year-end results for 2023.
Simply Wall Street reviews this stock via Yahoo Finance. They put out one warning of unstable dividend track record.
ARC Resources Ltd 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 Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC-APYRF) ... learn more. The next stock I will write about will be Russel Metals Inc (TSX-RUS, OTC-RUSMF) ... learn more on Friday, February 16, 2024 around 5 pm. Tomorrow on my other blog I will write about Victim of Fraud.... learn more on Thursday, February 15, 2024 around 5 pm.
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