canadian utilities
CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $42 and CU.X [class B voting] $42; Income Portfolio, Utilities sector; Shares outstanding: 263.3 million; Market cap: $11.1 billion; Price-to-sales ratio: 3.1; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.
Alberta power regulators recently selected Canadian Utilities to build and operate a new 500- kilometre transmission line between Edmonton and Fort Mc- Murray, an area where power demand could double in the next 10 years.
The company will own 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Canadian Utilities’ share of the $1.43-billion cost is $1.14 billion. Construction will begin in 2017, and the new line should start up in 2019.
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Alberta power regulators recently selected Canadian Utilities to build and operate a new 500- kilometre transmission line between Edmonton and Fort Mc- Murray, an area where power demand could double in the next 10 years.
The company will own 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Canadian Utilities’ share of the $1.43-billion cost is $1.14 billion. Construction will begin in 2017, and the new line should start up in 2019.
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Canadian Utilities and ATCO (see box) offer investors two ways to buy essentially the same businesses. We like both stocks, but income-seeking investors should pick the subsidiary, Canadian Utilities, while value seekers should buy the parent, ATCO. CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $42 and CU.X [class B voting] $42; Income Portfolio, Utilities sector; Shares outstanding: 263.3 million; Market cap: $11.1 billion; Price-to-sales ratio: 3.1; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company....
ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $48 and ACO.Y [class II voting] $48; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $5.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energyexploration firms; Canadian Utilities owns the remaining 24.5%. The drop in oil prices is hurting growth at the structures business. As a result, ATCO likely earned $3.02 a share in 2014, down 10.9% from 2013. But higher earnings from Canadian Utilities should raise its 2015 earnings to $3.39 a share, and the stock trades at 14.2 times that estimate. The $0.99 dividend yields 1.8%. Based on current prices, you can buy an ATCO share for $48 and get roughly $51 worth of Canadian Utilities. That means you get ATCO’s structures business, which provides around 25% of its earnings, for free....
We still think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong business prospects.
These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.
Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.
Here are 20 stocks we think meet those criteria:
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These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.
Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.
Here are 20 stocks we think meet those criteria:
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Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor. We continue to advise against investing in bonds, because low interest rates hurt their appeal, while rising rates would push down their future value. For stable income and growth, we prefer high-yielding utilities. Their dividends also qualify for the dividend tax credit. ATCO LTD. (Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting; www.atco.com) holds 53.2% of Canadian Utilities. It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy exploration firms; Canadian Utilities owns the remaining 24.5%....
CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $39 and CU.X [class B voting] $39; Income Portfolio, Utilities sector; Shares outstanding: 262.8 million; Market cap: $10.2 billion; Price-to-sales ratio: 2.9; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www. canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see page 84) owns 53.2% of the company.
Canadian Utilities continues to invest in projects that will make Alberta’s electricity grid more reliable. For example, it is building 355 kilometres of new transmission lines and substations in the province’s southeast. So far, the company has spent $1.3 billion on this $1.8-billion project. It should begin operating in early 2015.
In all, Canadian Utilities expects to spend $5.5 billion on upgrades to its power lines and pipelines in Alberta between 2014 and 2016. These improvements will help it take advantage of rising electricity demand from oil sands projects.
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Canadian Utilities continues to invest in projects that will make Alberta’s electricity grid more reliable. For example, it is building 355 kilometres of new transmission lines and substations in the province’s southeast. So far, the company has spent $1.3 billion on this $1.8-billion project. It should begin operating in early 2015.
In all, Canadian Utilities expects to spend $5.5 billion on upgrades to its power lines and pipelines in Alberta between 2014 and 2016. These improvements will help it take advantage of rising electricity demand from oil sands projects.
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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $48 and ACO.Y [class II voting] $48; Income Portfolio, Utilities sector; Shares outstanding: 115.3 million; Market cap: $5.5 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities (see page 85). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energyexploration firms; Canadian Utilities owns the remaining 24.5%.
The company recently agreed to sell its information technology subsidiaries in Canada and Australia. These businesses provide computer support, billing, payment processing and related services to ATCO’s other subsidiaries, as well as outside clients.
The buyer, Wipro Ltd., will pay $210 million when the sale closes later this year. In addition, Wipro will provide computer support and related services to ATCO under a new 10-year contract.
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The company recently agreed to sell its information technology subsidiaries in Canada and Australia. These businesses provide computer support, billing, payment processing and related services to ATCO’s other subsidiaries, as well as outside clients.
The buyer, Wipro Ltd., will pay $210 million when the sale closes later this year. In addition, Wipro will provide computer support and related services to ATCO under a new 10-year contract.
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Inflation remains low in Canada. That’s one reason why interest rates remain at today’s historically low levels. However, the long-term outlook is for higher rates, as the expansion of the money supply in the past few years will likely spur inflation. We continue to advise against investing in bonds, because low interest rates hurt their appeal, while rising rates would push down their future value. If you need stable income, we prefer highyielding utilities like these four. Their dividends also qualify for the dividend tax credit....
BMO S&P/TSX Laddered Preferred Share Index ETF, $14.48, symbol ZPR on Toronto (Units outstanding: 70.1 million; Market cap: $1.0 billion; www.etfs.bmo.com), holds Canadian floating-rate preferred shares. Issuers include Bank of Montreal, Enbridge, BCE, TransCanada and Canadian Utilities. The ETF’s MER is 0.45%. It currently yields 4.3%. Note that the dividends you receive from this fund do benefit from the Canadian dividend tax credit. Floating-rate preferred shares pay dividends that fluctuate with changes in interest rates. The dividend rate may range from 50% to 100% of (usually) the prime bank rate. As interest rates rise, so do floating-preferred dividend yields....
ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $54 and ACO.Y [class II voting] $54; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.atco.com) holds 53.1% of Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy-exploration firms; Canadian Utilities owns the remaining 24.5%.
In 2013, ATCO’s revenue rose 8.6% to $4.4 billion from $4.0 billion in 2012. That’s mainly because Canadian Utilities’ new power lines boosted its contribution. The structures division’s revenue rose just 0.4%, partly because ATCO sold its 50% stake in a South American joint venture for $124 million. It also completed three large projects in Australia in 2012 and early 2013.
Earnings rose 13.0%, to $418 million, or $3.62 a share, from $370 million, or $3.20. Without unusual items, earnings rose 5.4%.
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In 2013, ATCO’s revenue rose 8.6% to $4.4 billion from $4.0 billion in 2012. That’s mainly because Canadian Utilities’ new power lines boosted its contribution. The structures division’s revenue rose just 0.4%, partly because ATCO sold its 50% stake in a South American joint venture for $124 million. It also completed three large projects in Australia in 2012 and early 2013.
Earnings rose 13.0%, to $418 million, or $3.62 a share, from $370 million, or $3.20. Without unusual items, earnings rose 5.4%.
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