Canadian Utilities Dividend Stock Analysis

CU - Canadian UtilitiesCanadian Utilities is a company I was not aware of until I saw it on the Canadian Dividend Aristocrats list. As I favour regular and consistent dividend increase, I needed to have a look at the company. CU is a holding company operating in 4 sectors:

  • Utilities with the distribution of natural gas and electricity through ATCO, Northland Utilities and Yukon Electric.
  • Energy generation, storage and processing through ATCO.
  • Structures & Logistic provides services across 5 continents as a turnkey solution.
  • Technology through ATCO Australia provides a number of business and IT services.

As you can see, Canadian Utilities isn’t a primary utility that we deal with in Canada but with all its subsidiaries in the utility sector across many continents, it operates as a utility company nonetheless. What is interesting is that they appear to have a business in all the areas of business that they require. Companies like that don’t usually invest in IT as it is outside their core competencies.

Corporate Structure

CU Quick Facts

  • Stock Ticker: TSE:CU
  • Market Cap.: 10.29B$
  • P/E: 19.47
  • Forward P/E: 16.632
  • P/B: 2.79 (Price to Book)
  • P/S: 3.19 (Price to Sale)
  • P/CF: 6.85 (Price to Cash Flow)
  • EPS: $4.11
  • Beta: -0.02
  • Liabilities to Equity Ratio: 2.07
  • Quarterly Dividends: $0.49
  • Dividend Yield: 2.43%
  • Dividend Payout Ratio: 42.96%
  • 10 Year EPS Growth Average: 8.75%
  • 10 Year Dividend Growth Average: 7.51%
  • 52-Week Low: $63.11
  • 52-Week High: $81.13
  • 52-Week Range: 93.73%

CU Dividend Growth

The growth is quite nice over the past 10 years. They actually reduced dividends once and it looks like it was increased too much the prior year if you see the trend. The higher dividend increase you see in 2006 is due to a one time extra dividend payment. Canadian Utilities has increased dividends for 40 years in a row if you don’t include the one time extra dividend payment there are no drops in dividends. This initial blip was a concerned for me and I had to dig deeper to find out.

CU Dividend GrowthAfter 10 years, Canadian Utilities would have tripled your money when the markets only doubled. I consider that quite a nice investments. As I look more and more into this investment, I wonder what the downside is … It is trading at a 52-week high with a relatively lower yield than many other Canadian blue chips.

YearDividendsGrowthStock PriceSharesDividendsNew SharesValue
2002$0.98$26.60187$183.266$4,974.20
2003$1.024.08%$29.08193$196.866$5,612.44
2004$1.063.92%$30.16199$210.946$6,001.84
2005$1.103.77%$43.98205$225.505$9,015.90
2006$1.4027.27%$44.06210$294.006$9,252.60
2007$1.25-10.71%$45.50216$270.005$9,828.00
2008$1.336.40%$41.00221$293.937$9,061.00
2009$1.416.02%$42.70228$321.487$9,735.60
2010$1.517.09%$54.40235$354.856$12,784.00
2011$1.616.62%$61.54241$388.016$14,831.14
2012$1.779.94%$71.73247$437.196$17,717.31

CU vs Market

CU Dividend Payout Ratio

Aside from the blip in dividend increase and decrease around 2006, the dividend payout ratio is pretty stable at around 45%. Fortis, for example, has a 75% payout ratio while Enbridge (TSE:ENB, NYSE:ENB) has a payout ratio above 100%. When comparing with utilities, the payout ratio is really good. When comparing with energy producers, the payout is slightly higher. The stable payout highlights that if EPS grows, so will the dividends and that’s what we all want!

CU Payout Ratio

CU EPS Growth

Not a steep growth but it’s growth! Before moving further and taking a position, I would like to understand the growth of the 4 different sectors. The research to surface the data requires more time but understanding if the company is carrying dead weight is important.

CU EPS Growth

Thoughts

My initial research generated more questions than answers and I continued to investigate to get a better picture.

  1. Why were the dividends increased inconsistently in 2006 – That’s due to a one-time extra dividend payment. Companies will do that from time to time when the balance sheet is strong.
  2. What’s the growth of the different sectors – two of the sectors seem outside their core competencies.

The silver lining is that 78% of their revenue is locked in under long-term contract. Their business is also mostly in Australia and Canada which eliminates some political uncertainties. I am not sure if they are positioned to benefit from natural gas export to Asia either unlike many of the large corporation looking into the west coast pipelines. (TRP might be a good play on that pipeline by the way.)

I prefer Enbridge and Fortis for now even if their payout ratio is higher. Their business is focused and well established within Canada and the US whereas Canadian Utilities is covering many more continents without the size of a blue chip corporation. Utilities definitely fit the bill for a safe Canadian stock but it may not have the same growth as others.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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