Is it a good company at a reasonable price? This is a resource stock and therefore has a tendency to be cyclical. It has not yet reach past peaks of June 2008 and June 2014, but it is fairly high for the current cycle. Personally, for cyclical stocks I like to see them relatively closer to their lows than their highs. Most of the tests say that the stock price is relatively reasonable but above the median. This is probably accurate.
I do not own this stock of ARC Resources Ltd (TSX-ARX, OTC-AETUF). When TFSA first came out, this stock was recommended for this account as it was an income trust at that point and most of the distributions were taxable. This stock is no longer an income trust and the distributions are now dividends and taxed as normal Canadian dividends.
When I was updating my spreadsheet, I noticed that this stock used to be an income trust. These stocks have had a hard time getting dividends right. Since changing from an Income Trust in 2011, they did a lot of dividend decreases. In 2021 they started to raise dividends. Dividends are now higher than they were 5 years ago. You probably need to be careful about timing any investment in the company. Look at the returns for 5 and 10 years below.
If you had invested in this company in December 2014, for $1,006.40 you would have bought 40 shares at $37.44 per share. In December 2024, after 10 years you would have received $237.84. in dividends. The stock would be worth $1,042.80. Your total return would have been $1,280.64. This would be a total return of 2.72% per year with 0.36% from capital gain and 2.37% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $25.16 | $1,006.40 | 40 | 10 | $237.84 | $1,042.80 | $1,280.64 |
However, if you had invested in this company in December 2019, for $1,006.14 you would have bought 123 shares at $8.18 per share. In December 2024, after 5 years you would have received $276.26 in dividends. The stock would be worth $3,206.61. Your total return would have been $3,482.87. This would be a total return of 29.26% per year with 26.09% from capital gain and 3.17% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $8.18 | $1,006.14 | 123 | 5 | $276.26 | $3,206.61 | $3,482.87 |
The current dividend yield is moderate with dividend growth now increasing. The current dividend yield is moderate (2% to 4% ranges) at 2.86%. The 5 and 10 year median dividend yields are also moderate at 2.92% and 3.46%. The historical median dividend yield is high (7% and above) at 7.57%. This company used to be an income trust, which can have high payouts.
All the old income trusts are having a hard time getting their dividend policies right after the switch to corporations. The dividend increase over the past 5 years is 2.5%, but includes a lot of high changes as dividend changes over the past 5 years are from 2020 are -60.00%, 2.50%, 78.86%, 45.45%, and 6.25%.
The Dividend Payout Ratios (DPR) are fine. The DPR for 2024 for Earnings per Share (EPS) is good at 36% with 5 year coverage at 29%. The DPR for 2024 for Funds from Operations (FFO) is good at 16% with 5 year coverage at 11%. The DPR for 2024 for Free Funds Flow (FFF) is high at 65% with 5 year coverage good at 25%. The DPR for 2024 for Cash Flow per Share (CFPS) is good at 16% with 5 year coverage at 11%. The DPR for 2024 for Free Cash Flow (FCF) is high at 63% with 5 year coverage good at 24%.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 36.17% | 29.32% |
| FFO | 16.39% | 11.34% |
| FFF | 64.76% | 25.41% |
| CFPS | 16.22% | 11.25% |
| FCF | 63.39% | 24.69% |
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2024 is good at 0.09 and currently at 0.09. The Liquidity Ratio for 2024 is low at 1.14 and 1.14 currently. If you added in Cash Flow after dividends, the ratios are good at 3.35 and currently at 4.56. The Debt Ratio for 2024 is good at 2.54 and 2.54 currently. The Leverage and Debt/Equity Ratios for 2024 are good at 1.65 and 0.65 and currently at 1.65 and 0.65.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.09 | 0.09 |
| Intang/GW | 0.02 | 0.02 |
| Liquidity | 1.14 | 1.14 |
| Liq. + CF | 3.35 | 4.56 |
| Debt Ratio | 2.54 | 2.54 |
| Leverage | 1.65 | 1.65 |
| D/E Ratio | 0.65 | 0.65 |
The Total Return per year is shown below for years of 5 to 28 to the end of 2024. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2019 | 5 | 2.53% | 29.26% | 26.09% | 3.17% |
| 2014 | 10 | -5.52% | 2.72% | 0.36% | 2.37% |
| 2009 | 15 | -4.23% | 5.71% | 1.81% | 3.90% |
| 2004 | 20 | -4.75% | 9.01% | 1.92% | 7.09% |
| 1999 | 25 | -2.71% | 21.43% | 4.42% | 17.02% |
| 1996 | 28 | -3.05% | 12.92% | 2.56% | 10.36% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 4.73, 7.25 and 8.98. The corresponding 10 year ratios are 5.12, 7.44 and 9.75. The corresponding historical ratios are 9.69, 11.99 and 14.30. The current P/E Ratio is 9.07 based on a stock price of $26.57 and EPS estimate for 2025 of $2.93. The current ratio is between the median and high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have Funds from Operations (FFO) data. The 5-year low, median, and high median Price/ Funds from Operations Ratios are 2.12, 3.04 and 4.37. The corresponding 10 year ratios are 3.35, 4.72 and 5.96. The current ratio is 4.50 based on a stock price of $26.57 and FFO estimate for 2025 of $5.90. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I also have Free Funds Flow (FFF) data. The 5-year low, median, and high median Price/ Free Funds Flow Ratios are 3.47, 5.93 and 8.98. The corresponding 10 year ratios are 18.66, 22.17 and 25.69. The current ratio is 23.30 based on a stock price of $26.57 and FFF for the last 12 months of 1.05. The current ratio is between the median and high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $29.82. The 10-year low, median, and high median Price/Graham Price Ratios are 0.59, 0.84 and 1.00. The current P/GP Ratio is 0.89 based on a stock price of $26.57. The current ratio is between the median and high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10-year median Price/Book Value per Share Ratio of 1.55. The current P/B Ratio is 1.97 based on a Book Value of $7,948M, Book Value per Share of $13.48 and a stock price of $26.57. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I also have a Book Value per Share estimate for 2025 of $14.93. This implies a ratio of 1.78 and Book Value of $8,803M with a stock price of $26.57. This ratio is 15% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 4.75. The current P/CF Ratio is 4.52 based on Cash Flow per Share estimate for 2025 of $5.87, Cash Flow of $3,464M and a stock price of $26.57. The current ratio is 4.9% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 7.57%. The current dividend yield is 2.86% based on a stock price of $26.57 and dividends of $0.76. The current dividend yield is 62% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem with this test is that is works for when dividends are increasing not decreasing.
I get a 10 year median dividend yield of 3.46%. The current dividend yield is 2.86% based on a stock price of $26.57 and dividends of $0.76. The current dividend yield is 17% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median. As I said above, this test works best with increased dividends and not decreasing dividends.
The 10-year median Price/Sales (Revenue) Ratio is 2.91. The current P/S Ratio is 2.73 based on Revenue estimate for 2025 of $5,744M, Revenue per Share of $9.74 and a stock price of $26.57. The current ratio is 6.28% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price could be reasonable judging by the P/S Ratio test. The dividend yield tests are not good because dividends have mostly been decreasing and this testing works best for increasing dividends. The P/S Ratio test says the stock is relatively reasonable. However, a lot of the testing is saying that the stock price is reasonable but above the median. This is probably the correct answer.
When I look at analysts’ recommendations, I find Strong Buy (11), Buy (6). The consensus would be a Strong Buy. The 12 month stock price consensus is $33.18 with a high of $37.00 and low of $29.00. The consensus stock price of $33.18 implies a total return of 27.74% with 24.88% from capital gains and 2.86% from dividends.
There are a number of entries on Stock Chase for 2025 and they are all buys. Analysts think it is a well-managed company. Stock Chase gives this stock 5 stars out of 5. Amy Legate-Wolfe on Motley Fool says ARC’s record production levels indicate a solid foundation for future operations. Sneha Nahata on Motley Fool thinks this is a stock to buy and hold. The company put out a press release via Newswire about their fourth quarter results.
Simply Wall Street via Yahoo Finance reviews this stock and they say they are a little wary of this company going forward. They have one warning of unstable dividend track record. Simply Wall Street gives this stock 3 and one half stars out of 5.
ARC Resources Ltd is an independent energy company engaged in the acquisition, exploration, development, and production of conventional oil and natural gas in Western Canada. The company produces light, medium, and heavy crude, condensate, natural gas liquids, and natural gas. Its web site is here ARC Resources Ltd.
The last stock I wrote about was about was Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC-APYRF) … learn more. The next stock I will write about will be IGM Financial Inc (TSX-IGM, OTC-IGIFF) … learn more on Monday, February 17, 2025 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. I am not a licensed professional investment advisor. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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