Earnings for Canadian Utilities jumped in the second quarter on cost-cutting but, more importantly, key investments by the company.
Canadian Utilities is a long-term favourite of ours, mainly due to its stable cash flows and annual dividend increases.
We also like its parent company ATCO (Toronto symbol ACO), which gives you a way to buy Canadian Utilities at a discount. However, ATCO pays a lower dividend.
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 and Australia. It also operates 15 power plants, in Canada (13) and Australia (2). ATCO Ltd. (see box) owns 53.1% of the company.
Earnings in the second quarter of 2016 rose to $108 million, or $0.34 a share, from $43 million, or $0.12 a year earlier.
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If you exclude unusual items, earnings gained 29.7%, to $131 million from $101 million. That’s due to new investments in its power plants and pipeline operations, and cost cuts.
Revenue in the quarter declined 3.1%, to $756 million from $780 million, mainly due to lower power prices in Alberta. The wildfires in Fort McMurray also disrupted operations. However, the company estimates the damages at just $10 million after insurance.
Canadian Utilities generates about 32% of its power from two coal-fired electric generating plants in Alberta. Most of the rest of its power comes from natural gas-fired plants.
Alberta Premier Rachel Notley recently mandated that coal power be phased out in the province by 2030. However, coal-power producers, including Canadian Utilities, will get (as yet to be determined) compensation from the Alberta government.
The company should earn $2.09 a share in 2016, and the stock trades at 17.2 times that forecast. The $1.30 dividend yields 3.6%.
The class A non-voting shares are more liquid than the class B voting shares.
Recommendation in The Successful Investor: BUY the class A stock
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I invest in Canadian Utilities. Thank you for your explanation of pending Alberta regulatory changes around coal and their potential impact on growth.
I’ve held CU for years and agree that it should be able to adjust to the new carbon rules.