Tuesday, August 31, 2010

ATCO Ltd 2

I never owned this stock (TSX-ACO.X). This is a Canadian Utility stock. It is the sort of stock that is for conservative investors and a great one to start off a dividend paying stock portfolio. The reason I do not own this particular one is that I have other conservative utility stock that have the same dividend characteristics.

Of course, the reason I think it is a good stock, is that my present game plan is to own dividend paying stock and collect my dividends until times improve. We are in a recession and it is hard to know how long it will last. We certain have problems.

Take Greece for an example. I do not see how lending more money to a country drowning in debt is going to help. I think we need an orderly way for counties to go bankrupt or default on their sovereign bonds. I think that the sooner Greece does this, the better for all concern. However, who am I to say what Greece should do. But I can see that Greece is a problem and we do not yet know the outcome of their problems.

For this particular company, I find that there has been a bit insider buying over the past year and some $1.3M insider selling. Of course, this being a $2B company, insider selling is a small percentage of 1% of the outstanding shares. Also, ATCO Ltd has been buying back Class I non-voting shares for cancellation. However, there is no real useful information in the Insider Trading report.

When I look at the 5 year low median P/E ratio, I get one of 10 and the 5 year high median P/E ratio is 14.6. This means that the current P/E ratio of 10.6 is a good one, both on a relative and an absolute basis. This P/E ratio is based on earnings estimates. I get a Graham Price of $62.22. The current stock price of $50.19 is some 24% below this. This shows a good current price, however, the stock price on this stock is often below the Graham Price.

When I look at the Price/Book Value Ratio, I get a current one of 1.39 and a 10 year average of 1.55. The current one is just over 90% lower than the 10 year average. This shows a good, but not great price for this stock. When I look at the dividend yield, I get a current one of 2.1%. The 5 year average is 2.1%. There is a 10 year average low of 2.7%. So, this shows a reasonable stock price.

When I look at analysts’ recommendations, I see a lot of Hold recommendations, a few Buy, one Strong Buy, and one Sell recommendations. The consensus recommendations would be a Hold. (See my site for information on analyst ratings.) It is not that people dislike this company, but most of the Hold recommendations come with a 12 month stock price not much different from the current price.

No one says anything bad about this company. No one sees any reason why the company will not increase their dividends again in 2012. However, since the dividend yield is just 2% on this utility, the dividend rate is lower than is general for most Canadian utility stocks. Analysts just seem to feel that you will not make much more from this stock than dividend over the next 12 months.

ATCO LTD. is a management holding company with operating subsidiaries in electric and natural gas utility operations, independent power operations, production, storage, processing, gathering, delivery of natural gas, technical facilities management for the industrial, defense and transportation sectors, the manufacture, sale and leasing of industrial shelters and industrial noise abatement technologies. ATCO has a 52% stake in Canadian Utilities Ltd. The company utilizes a dual share structure and it is effectively controlled by R.D. Southern. Ronald D. Southern owns 83%. The Southern family of Alberta made its wealth by doing a fine job of managing the company and its subsidiaries. Company has two classes of shares voting and non-voting. Its web site is here ATCO. See my spreadsheet at aco.htm.

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. See my website for stocks followed and investment notes. Follow me on twitter.

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