Altagas Ltd (ALA.TO)

Subscription Receipt. This is a regulated utility. They made a big acquisition in the US. They issued these subscription receipts which pays a 7% dividend. If the deal falls apart, you get your money back. If the deal doesn’t close in a year, you get $31 plus your 7% dividend yield.

The payout ratio in the last quarter was less than 50%, using a cash flow valuation basis, the correct metric to use. They acquired WGL Holdings, which hasn’t closed yet, so they still have receipts outstanding. The dividend is nice. They’ve also said that the accretion to cash flow is very, very strong from the acquisition, so they are actually forecasting dividend increases going forward. There is a good opportunity here for income investors. It should be trading at a lower yield and higher price than what it is right now. Dividend yield of 7%.

He doesn’t like this one. It closed at $30.08. His model prices $22.21, a negative 25%. It is an earnings issue. The dividend is $2.22, 7.38%, but it is only earning $.91 with $.99 forecasted for 2018. Paying way too much in terms of their earnings.

He likes this because of their assets. It might not go anywhere for the next 6 months, but over the next 2-3 years, their EBITDA and cash flow generation gives them a growth profile for utilities, which is quite unique.

This has operations both in Canada and the US. Energy infrastructure. They have power, and a utility segment. Made a big US acquisition a few months ago of a utility, which they financed partly with debt and partly with instalment receipts. Feels the dividend is sustainable. The instalment receipts are yielding over 7%. There is a concern in the market that they are going to have to raise more equity, but he doesn’t feel that is well-founded.

They are doing an acquisition of a company that is bigger than they are, causing the stock to be down. It is on his short list for studying. They will sell off assets once the acquisition is complete.

Hasn’t done well lately. Dividend yield of almost 7%. He expects them to increase the dividend this year by 6% or so. The stock is going sideways, because they are in the midst of doing a US acquisition, and the market doesn’t like it as it moves them more towards a utility.

(ALA.R-T Subscription Receipts. 9/4/18.) This is part of a financing that was done in February in a deal to acquired WGL for $8.5 billion. This is scheduled to close in 2018, and subscription receipts are a way to play that. Should the deal fall apart, you get your money back. He looks at this as a “no lose” as you get close to 7% to wait.

A good company and well-managed, but the environment still hasn’t really improved in Alberta to the point where you would really want to step in. There are others that are a lot safer in terms of the dividend. There are decent yields and growth elsewhere.

Prefers growthier pipelines. This one is a mixture of some pipe, some power generation, and is a little more BC oriented. With the big acquisition, the receipts still out there, and that has been pressing on the stock for a while. The entry point is probably okay at around $30-$31, and the 6.8% dividend yield is relatively safe.

This has been quite active in acquisitions. They bought Washington Gas & Light company in the DC area, as a big foray into the US. They feel it provides them with some unique diversification, as well as a kind of rollup capacity in the market. It is going to be a “show me” story, and is going to take a long time. In the meantime, they’ve suffered with the oil/gas patch in general. It’s quite exposed to gas in its midstream operations. He believes the 6% dividend is safe. It probably won’t be growing as quickly as it has, because they have to absorb the WGL assets. They successfully raised capital. Thinks they are in OK shape, but doesn’t feel this is the best place to be in that space right now. Prefers others.

He does not know how sustainable the dividend is. The earnings have been slipping away. There is a gap of about 24%. The stock is not horribly priced, but he does not like a company paying out more than they make. They are paying out more than twice their earnings. The quality of the balance sheet is okay, but not fabulous.

This is probably a good entry point in buying the subscription receipts. They are in the process of trying to acquire Washington Gas and Light, a large US utility. Did a large financing, issuing subscription receipts, which turn into the stock if they close on the acquisition. They are actually trading at a discount, so a pretty reasonable way of entering the stock.

It is painted with the same brush as the rest of the group. Their recent acquisition in WGL Holdings ups their exposure to power and electricity and the greater consistency of cash flow. They have north of 6% sustainable dividend yield. (Analysts’ target: $36.00).

From a technical perspective, this is really at its support level. If it breaks below $29, that would be a negative sign.