Growth by acquisition can be risky, as newly purchased companies may develop unforeseen problems, especially in an unsettled economy. However, Veresen aims to cut that risk by adding plants with long-term contracts already in place.
VERESEN (Toronto symbol VSN; www.vereseninc.com) owns pipelines, power plants and gas processing facilities across North America. A major holding is 50% of the Alliance gas line, which runs 3,000 kilometres between Chicago and Fort St. John, B.C. Enbridge (Toronto symbol ENB) owns the other 50%.
Veresen also owns the Alberta Ethane Gathering System, and Veresen and Enbridge together hold 85.4% of the Aux Sable NGL plant.
In February 2012, Veresen paid Encana Corp. (Toronto symbol ECA) $920 million for the Hythe/Steeprock natural gas gathering and processing complex. Encana signed a long-term deal to buy most of this facility’s gas.
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Dividend stocks: Veresen’s dividend features high yield of better than 7%
To diversify beyond pipelines and gas-processing plants, Veresen continues to expand its power generation business. It now owns hydroelectric facilities in New York State and B.C.; natural gasfired plants in Ontario, California and Colorado; and waste-heat plants in B.C. and Saskatchewan.
In the quarter ended December 31, 2012, cash flow rose 6.2%, to $56.5 million from $53.2 million a year earlier. Cash flow per share fell 9.4%, to $0.29 from $0.32, on more shares outstanding. Profit margins at Aux Sable have declined along with NGL prices.
Veresen currently trades at 12.1 times its forecast 2013 cash flow of $1.10 a share. The stock yields a high 7.2%.
In the latest issue of Canadian Wealth Advisor, we look at whether Veresen’s plan to diversify will be successful and whether it can maintain its cash flow and high dividend. We conclude with our clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
When a stock has a large part of its assets in natural gas, are you more inclined to invest in it if it is also diversified into other areas? Or do you think the long-term outlook for natural gas prices is good enough to buy and hold a stock that is predominantly involved in natural gas or NGL? Would you hold such a stock if it didn’t pay a dividend? Let us know what you think.
Comments
stan
I own some of this in my RSP. It has recently moved upwards from the $13 area. The price volatility is quite low on this one, a bit like a preferred. It now seems to be hovering around $13.80. An excellent holding if you are looking for monthly income. If you can readjust to the current price trends you could also trade this one occasionally, but keep in mind that the dividend is paid monthly.
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X No, I don’t want to make steady income from dividends.
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I own some of this in my RSP. It has recently moved upwards from the $13 area. The price volatility is quite low on this one, a bit like a preferred. It now seems to be hovering around $13.80. An excellent holding if you are looking for monthly income. If you can readjust to the current price trends you could also trade this one occasionally, but keep in mind that the dividend is paid monthly.
I won,t buy any stock without a Dividend.