atco

TECK RESOURCES LTD., $19.99, Toronto symbol TCK.B, will sell 101.3 million class B subordinate-voting shares (one vote per share) at $17.21 each to China Investment Corp., a sovereign wealth fund controlled by the Chinese government. Teck is selling these shares for 13.9% below the current market price. That’s because China Investment agreed to certain conditions, including holding onto these shares for at least a year and not selling them to one of Teck’s main rivals or customers. Despite the discount, Teck’s shares rose 8% on the news. That’s because Teck will put the $1.7 billion proceeds from the sale toward the $9.8-billion U.S. it borrowed to finance its $13.6-billion (Canadian) purchase of Fording Canadian Coal Trust last October....

CANADIAN UTILITIES LTD. (Toronto symbols CU $35 (class A non-voting) and CU.X $35 (class B voting); Income Portfolio, Utilities sector; Shares outstanding: 125.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.6; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates power plants in other parts of Canada, the U.K. and Australia. ATCO Ltd. (Toronto symbols ACO.X and ACO.Y) owns 52.3% of Canadian Utilities. The company is evaluating a proposal to merge its Frontec division with ATCO’s Structures business. Both perform similar functions, including building temporary structures, airfields and communications systems for clients in the resource and construction industries. Canadian Utilities did not say how much this move would save it, but it plans to make a decision by the end of the second quarter. Meanwhile, Canadian Utilities earned $145.4 million, or $1.16 a share, in the three months ended March 31, 2009. That’s 3.3% less than the $150.3 million, or $1.20 a share, it earned a year earlier. If you disregard unusual items, including an insurance benefit stemming from an unplanned outage at its U.K. power plant in the year-earlier quarter, its earnings per share fell 1.7%. This plant is now operating normally, and that helped increase the company’s revenue by 3.8%, to $768.6 million from $740.6 million....

With bonds yielding just 2% to 3%, we believe that income-seeking investors are better off sticking with high-quality utility stocks, such as these four electricity generators. All have consistently posted strong earnings, and have long histories of raising their dividends. Unlike bond-interest payments, which are taxed as regular income, their dividends qualify for the dividend tax credit. They also have greater capital-gains potential. TRANSALTA CORP. $20 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 197.8 million; Market cap: $4 billion; Price-to-sales ratio: 1.3; SI Rating: Average) operates over 50 electrical-power plants in Canada, the United States and Australia. TransAlta uses coal to generate 60% of its electricity, and owns three coal mines (two in Alberta and one in Washington State). This helps keep its costs down. Natural gas fuels 30% of the company’s electricity production, and hydroelectric and other sources account for 10%....

ENCANA CORP. $52 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.2 million; Market cap: $39.0 billion; SI Rating; Average) plans to let shareholders vote on its plan to split itself into two companies — one focusing on natural gas, the other on oil sands and oil refineries. The gas company will keep the EnCana name, while the oil company will take the name Cenovus Energy Inc. Shareholders will receive one new share in each new company for every EnCana share they hold. Break-ups like this generally work out well for investors, as the total value of the two new stocks usually exceeds the value of the former parent company over time. EnCana got as high as $98 in May, 2008, but has moved down to its current price, mostly due to falling natural gas prices. Natural gas accounts for about 80% of EnCana’s total production. However, the company’s break-up plan and growing reserves enhance its long-term prospects....

TECK COMINCO LTD. $45.00, Toronto symbol TCK.B, has agreed to buy the 80.1% of FORDING CANADIAN COAL TRUST $89.90, Toronto symbol FDG.UN, that it does not already own. Fording unitholders will receive $82.00 U.S. in cash and 0.245 of a Teck class B subordinate voting share per unit. Fording’s units are trading about 5% below the implied value of the offer of $95.07, which indicates that a higher bid is unlikely. Teck’s offer is worth about $14.1 billion, including $1.5 billion in new shares. The purchase price is a high 67% of Teck’s market cap of $21 billion. However, Fording’s main asset is the Elk Valley coal project in British Columbia, which Teck currently manages. That eliminates the possibility of an unpleasant surprise. As well, full control of Fording will immediately add to both earnings and cash flow. Teck aims to complete the takeover by the end of October. Teck is a buy. Fording investors should hold, and tender their units to get the full amount without paying brokerage fees....

CANADIAN UTILITIES LTD. (Toronto symbols CU $48 (Class A) and CU.X $47 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $6.0 billion; SI Rating: Above average) is a leading distributor of natural gas and electricity in Alberta. It has over 1 million customers in nearly 300 communities. The company also operates independent power plants in other parts of Canada, the UK and Australia. ATCO Ltd. controls about 74% of the company’s class B voting common shares. Among Canadian Utilities’ overseas investments is a 25.5% stake in the Barking power plant in London, UK. Due to the recent failure of a steam turbine, the plant will operate at 60% of capacity for the next 45 days. The outage will cut Canadian Utilities’ earnings in the fourth quarter of 2007 by $5 million to $10 million....

Falling interest rates have rekindled investor interest in high-yielding utility stocks, such as these five. All of them have a long history of increasing dividends. Unlike interest payments on bonds, dividends qualify for the dividend tax credit. As well, stocks offer you open-ended returns, so they can give you protection against inflation. Bonds can’t provide this protection, because they are fixed-return investments. We see all five of these utilities as buys for long-term gains and income. TRANSCANADA CORP. $39 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 540 million; Market cap: $21.1 billion; SI Rating: Above average) operates a 59,000-km network of natural gas pipelines in Canada and the United States. This business supplies 70% of its profit. The remaining 30% comes from its electrical power operations. TransCanada aims to cut its reliance on its regulated pipeline business with new growth projects. These include the Keystone pipeline, which will transport crude oil from Alberta’s oil sands to the U.S. Midwest. Initial deliveries should begin in late 2009....

CANADIAN UTILITIES LTD. (Toronto symbols CU $42 (Class A) and CU.X $42 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $5.3 billion; SI Rating: Above average) is a leading supplier of natural gas and electricity in Alberta. It has 970,000 gas customers, and 216,000 electricity customers. It also operates power plants in other parts of Canada, as well as in the UK and Australia. ATCO Ltd. controls about 74% of the company’s class B voting common shares. In the past few years, Canadian Utilities has sold many of its unregulated operations. That hurts its growth prospects, but also limits its overall risk. It now gets about half of its revenue and income from regulated operations....

The move to deregulate electricity markets in the past decade has spurred many utilities to sell their power on the open market, instead of at predetermined rates. While that helps their growth, it also increases volatility. Here are three utilities that prefer regulation, since it helps guarantee their profits. Operating in regulated markets also helps keep out competitors, and gives them plenty of cash for dividends. We see all three as buys, particularly for income-seeking investors....