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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