This company’s ownership of a major electric and natural gas utility is its primary source of earnings.
Recently, this firm bought back the remaining 25% of its structures and logistics business, which should benefit it and its major subsidiary. Meanwhile the company has raised its dividend 24 years in a row and trades at a modest level to projected earnings.
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ATCO LTD., Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting] gets most of its earnings from its 52.7% stake in Canadian Utilities (Toronto symbol CU). That firm distributes electricity and natural gas in Alberta and Australia.
Until recently, ATCO also owned 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy-exploration firms. Canadian Utilities has now agreed to transfer its 24.5% stake in ATCO Structures & Logistics to the parent company. As a result, ATCO will own 100% of that business, which makes temporary buildings for construction, mining and energy exploration firms.
Under the deal, ATCO will pay $140 million to take over full ownership of the business. That’s 1.5 times the $96 million, or $0.30 a share, Canadian Utilities earned in the third quarter of 2017; ATCO earned $46 million, or $0.40 a share, in that quarter.
Dividend Stocks: 100% ownership of Structures makes sale or spinoff easier
Owning 100% of the Structures business makes it easier for ATCO to possibly sell or spin it off. As well, the transaction will let Canadian Utilities focus on its main businesses. (Canadian Utilities is a recommendation of both our flagship advisory on Canadian stocks, The Successful Investor, and our special dividend newsletter, TSI Dividend Advisor.)
If you factor out unusual items, ATCO’s third quarter earnings fell 14.1%. That’s mainly because the Structures business completed a major contract in the year-earlier quarter. However, thanks to higher revenue at Canadian Utilities, ATCO’s overall revenue rose 15.6%, to $1.07 billion from $932 million.
ATCO last raised its quarterly dividend with the March 2017 payment by 14.9%, to $0.3275 a share from $0.285. The new annual rate of $1.31 yields 3.0%. ATCO has increased its dividend each year since 1993. That payment has grown an average of 14.9% annually over the last 5 years.
The stock trades at just 13.5 times ATCO’s projected 2018 earnings of $3.17 a share. The class I (X) non-voting shares are more liquid than the class II (Y) voting shares.
Recommendation in TSI Dividend Advisor: ATCO class I stock is a buy.
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