Dividend Stock Analysis: Canadian Utilities (TSE: CU)


I follow a dividend growth model – a way to ensure that I receive income regularly, and that the income will grow year-after-year as I sit tight and hold onto these growing companies. I’d like to do my own analysis of a series of stocks which are considered Canadian Dividend All-Stars. As described on his site, “The Canadian Dividend All-Star List is comprised of Canadian companies that have increased their dividend for 5 or more calendar years in a row.”

Considering there are quite a few Canadian Dividend All-Stars listed here, I’d like to focus in on the ones with the most successful dividend growth streaks. Why? Because when a company has payed out an increasing dividend for 41 years (Fortis Inc.), I’m sure they would not dream of ruining their incredible streak. In this case, I’d like to focus in on companies which have raised dividends for a minimum of 10 years.

I already own two companies which are listed in the 10 year+ section of the Dividend All-Stars, which are Telus Corporation (TSE: T) and SNC Lavalin Group Inc (TSE: SNC).

Today I’ve decided I’m going to take a look at Canadian Utilities Ltd (TSE: CU). I enjoy reading other dividend growth bloggers’ posts, and one of my favourite bloggers is Dividend Hustler, who just recently purchased shares of CU.

For a brief description of the company, “Canadian Utilities Limited is engaged in Utilities, such as pipelines, natural gas and electricity transmission and distribution, and Energy, such as power generation and sales, industrial water infrastructure, natural gas gathering, processing, storage and liquids extraction.”

CU is currently trading $36.76, only $0.26 above it’s 52-week low of $36.50 – which is very attractive. The fact that the price is so close to the 52-week low and far from the 52-week high is a good thing; meaning the stock has a large amount of space for growth. CU has a 52-week high of $44.27. Thomson Reuters has a mean 12-month price target of $43.30, with a low expectation of $39.00 and a high of $47.00. I really like how they have a low 12-month expectation of $39.00 / share, which is higher than the stock is currently trading at.

CU pays an annual dividend of $1.18, which equates to a 3.21% yield. The 5-year yield average is 2.76% however, meaning that since the stock price has gone down but the dividend payment has remained the same / grown, you are getting more and paying less. CU has increased dividends for 32 years without fail. I can count on this company to continue paying me more and more every year regardless of the economy.  In fact, during the financial crisis in 2008, CU raised their annual dividend from $0.67 to $0.71 (6% growth). CU currently has a very safe dividend payout ratio of 42% in 2014, and 48% for the most recent quarter (0.295 dividend / 0.61 earnings per share).

Given all this information, there’s a lot to love with CU. The dividend payment is safe and has grows consistently for decades. This is the type of company you can buy and hold for years and years and enjoy the growing dividends coming in.

However, they recently announced their 1st quarter results for 2015 which were deep in the red, missing estimates by -27.57%. A consensus estimate was given for an  EPS of $0.68, while actual earnings were $0.49 / share. The stock price dropped from above $40 to $36.76 now. Thomson Reuters has given CU a hold rating and I agree with this, however I lean strongly towards the buy side. I may initiate a position if the stock prices drops a little bit more to reflect the large miss in estimated EPS.

Regardless of whether this is bought later or right now, Canadian Utilities Limited (TSE: CU) has a lot to offer to a dividend growth investor: from it’s 3.21% yield to its 5-year yield growth rate of 8.70%, to having grown dividends for over 3 decades. It is currently in a bit of hiccup, but that only means it’s on sale and can go on further liquidation.

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