Higher interest rates have recently helped to keep this utility’s share price down. That’s largely because this high-yielding stock competes with fixed-income investments for investor interest.
However, increased economic activity often accompanies higher rates and that usually helps utilities. Plus this company recently acquired full control of a business from its subsidiary, which adds to its earnings. This utility also gets most of its cash flow from rate-regulated businesses. That should let it keep raising its dividend, as it has for each of the past 25 years. The current yield is 3.7%.
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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting]; www.atco.com)gets most of its earnings from its 52.5% stake in Canadian Utilities (Toronto symbol CU).
Until December 2017, ATCO also owned 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy-exploration firms. Canadian Utilities agreed to transfer its 24.5% stake in ATCO Structures & Logistics to the parent company.
As a result, ATCO now owns 100% of that business, which makes temporary buildings for construction, mining and energy exploration firms. Under the deal, ATCO paid $140 million to take over full ownership of the business.
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.)
Dividend Stocks: Stock trades at low multiple to projected 2018 earnings
Lower earnings at Canadian Utilities offset gains from the structures business. As a result, ATCO’s earnings in the three months ended March 31, 2018, fell 14.7%, to $99 million from $116 million a year earlier. Due to fewer shares outstanding, earnings per share declined 13.9%, to $0.87 from $1.01. Revenue jumped 33.6%, to $1.5 billion from $1.1 billion.
In January 2018, ATCO also increased its quarterly dividend by 15.0%. Investors now receive $0.3766 a share, up from $0.3275. The new annual rate of $1.51 yields 3.7%. The company has increased its dividend each year for the last 25 years.
The stock trades at just 13.7 times ATCO’s projected 2018 earnings of $2.96 a share.
Recommendation in The Successful Investor: ATCO class I stock is a buy.
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I have bought Ford Motor stock which you recommended last May. Now with the threat of a 25% tariff, do you still stand behind this stock?