Low interest rates continue to spur demand for dividend-paying stocks, such as these two electrical utilities. In the latest issue of The Successful Investor we examine the outlook for each of these Canadian dividend stocks. Both of these companies plan to split their shares on a 2-for-1 basis in May 2013.
CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] and CU.X [class B voting]; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see below) owns 52.9% of the company.
In July 2011, Canadian Utilities bought an Australian natural gas distributor for $1.1 billion. This move, along with an expansion of its power transmission grid in Alberta, continues to benefit the company.
As a result, the company’s earnings rose 13.1% in 2012, to a record $561 million, or $4.11 a share. The new Australian business contributed $26 million to that total. In 2011, Canadian Utilities earned $496 million, or $3.65 a share. Revenue rose 4.7%, to $3.1 billion from $3.0 billion
Canadian Utilities continues to launch new projects, including a $735-million investment to build 355 kilometres of transmission lines and substations in southeast Alberta. This project should begin operating in the second half of 2013.
It’s also building a 485-kilometre transmission line from northeast of Edmonton to southeastern Alberta. This project will cost $1.6 billion and should begin operating in late 2014.
The company will probably earn $4.46 a share in 2013. The stock trades at 17.7 times that estimate. It also recently raised its dividend by 9.6%. The new rate of $1.94 a share yields 2.5%.
The class A non-voting shares are more liquid than the class B voting shares.
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Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.
ATCO LTD. (Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting]; www.atco.com) is a holding company. Its main subsidiary is 52.9%-owned Canadian Utilities (see above). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms; Canadian Utilities owns the remaining 24.5%.
In 2012, ATCO’s revenue rose 11.9% to $4.4 billion from $4.0 billion a year earlier. In addition to a higher contribution from Canadian Utilities, revenue at its structures division rose 24.8% due to new mines, such as the Jansen potash project in Saskatchewan. Earnings rose 14.7%, to $375 million, or $6.48 a share, from $327 million, or $5.64.
The stock trades at 13.4 times the $6.85 a share that ATCO should earn in 2012. The company also recently raised its annual dividend to $1.50 a share, up 14.5% from $1.31. The new rate yields 1.6%.
ATCO’s class I (X) non-voting shares are more liquid than the class II (Y) voting shares.
In the latest edition of The Successful Investor, we look at whether the new assets Canadian Utilities has added can offset lower revenue from its Alberta power plants due to planned maintenance shutdowns. We also examine relative value of ATCO’s shares based on what investors call a “holding company discount.” We conclude with our clear buy-sell-hold advice on both of these stocks.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
In purely practical terms, a stock split makes no difference in the value of the shares you hold in a company. Yet some observers claim that it is a good buy indicator since splits occur because the share price has been rising—and the revised, cheaper price will be more attractive to new investors. How do you react to share splits? Let us know what you think.
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Canadian Blue Chip Stocks:
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