“We can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives when companies spin off a subsidiary or division and hand out shares to their shareholders. Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years….” Pat McKeough shows how spinoffs and other “special situations” can create windfalls for informed investors.
ALTAGAS LTD. $21(Toronto symbol ALA; Shares outstanding: 267.4 million; Market cap: $5.6 billion; Dividend yield: 10.4%; Takeover Target Rating: Medium; www.altagas.com) processes, transports, stores and markets natural gas for producers. The company also operates natural gas utilities; and it is a power generator, with gas-fired, coal-fired, wind, biomass and hydroelectric plants.
Acquisitions and new projects increased AltaGas’s revenue by 17.8%, from $2.0 billion in 2013 to $2.4 billion in 2014. Revenue then fell to $2.2 billion in 2015, due to lower selling prices for natural gas and weaker power prices in Alberta.
In February 2016, the company sold some of its less-important gas-gathering and processing operations in the province to Tidewater Midstream and Infrastructure (Toronto symbol TWM). AltaGas received $30.0 million plus $64.9 million worth of Tidewater shares.
Due to that sale, overall revenue was unchanged at $2.2 billion in 2016. Revenue then improved 16.7% in 2017, to $2.6 billion.
Overall cash flow rose 17.4%, from $402 million in 2013 to $472 million in 2014. Due to more shares outstanding, cash flow per share gained just 7.2%, from $3.47 to $3.72. Cash flow then fell to $3.41 a share (or a total of $470 million) in 2015, but rebounded to $3.52 a share (or $554 million) in 2016 and to $3.60 (or $615 million) in 2017.
On September 13, 2018, AltaGas announced plans to bundle some of its Canadian utility and renewable energy assets to create a separate company. It will then sell shares in the new firm through an initial public offering (IPO). This could raise as much as $1 billion for AltaGas.
Once the company completes the IPO, it will own between 37% and 45% of the new firm—called AltaGas Canada Inc. (Toronto symbol ACI).
The new firm will hold both the company’s Canadian rate-regulated, natural gas distribution assets and its Canadian contracted wind-power assets. In addition, it will hold about 10% of the Northwest Hydro Facilities in B.C.
AltaGas also recently signed deals to sell about $560 million worth of its natural gas midstream assets and power-generating holdings to two buyers.
The company needs the proceeds to help pay down debt it took on with its $8.4 billion purchase of Washington, D.C.-based utility WGL Holdings Inc. It completed that purchase in July 2018.
For the three months ended June 30, 2018, AltaGas’ revenue increased by 13.2%, to $610.0 million from $539.0 million, a year earlier.
Revenue was higher mostly as a result of the addition of the North Pine liquids separation facility and Townsend 2A natural gas-processing facility.
Cash flow in the quarter fell 1.6%, to $121 million from $123 million. AltaGas sold shares to help pay for the WGL purchase, so cash flow per share declined at the faster rate of 6.9%, to $0.67 from $0.72 a year earlier.
The company continues to pay a monthly dividend of $0.1825 a share; the annual rate of $2.19 yields a very high 10.4%. While that dividend appears safe, AltaGas is unlikely to increase it in the near term.
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very helpful thank you
Thanks for the feedback, Norman. It’s always encouraging to hear from a satisfied customer.