Thursday, 18 January 2018

New Purchase - Capital Power Corp (CPX)

Today, I used fresh cash ($5,748) along with the proceeds from the sale of EMP.A and XTC to buy 604 shares of Capital Power Corp (CPX) @ $23.60. It pays a dividend of $1.67 per year, and the company plans on increasing the dividend by 7% per year through to 2020 (that’s 3 increases @ 7%). My total investment is $14,264.35, adding $1,008.68 to my yearly dividends – they now stand at $10,716.

So, why am I convinced this is a good investment? Read on…

On Jan. 9, 2018, President and Chief Executive Officer Brian Vaasjo purchased 2,300 shares at an average price per share of $24. The previous day, he bought 8,050 shares also at an average cost per share of $24. These trades lifted his portfolio's position to 94,680 shares.

On Jan. 12, 2018, Jill Gardiner, who sits on the board of directors, acquired 1,280 shares at an average price per share around the $23.44 level, increasing her account's position to 6,705 shares.

John Heinzl published an article on October 31, 2017, “A 6.8 per cent dividend yield that’sactually safe”. You can read the full article if you have a Globe and Mail subsription. If not, here is an excerpt:

Even as the company has been increasing its dividend, its payout ratio is a comfortable 48 per cent of adjusted funds from operations (AFFO) for 2017, falling to 44 per cent in 2018, according to analyst Patrick Kenny of National Bank Financial. Despite Capital Power posting a net loss of $5-million, or 13 cents a share, in the third quarter – reflecting non-cash charges – Mr. Kenny maintained his "outperform" rating and $33 target price, noting that Capital Power still expects AFFO to come in near the midpoint of its guidance range of $340-million to $385-million in 2017. (AFFO is based on net cash flow from operating activities, adjusted for a number of items, and is "a measure of the company's ability to … fund growth capital expenditures, debt repayments and common share dividends to the company's shareholders," Capital Power says.)

Raymond James is positive: "The company's pipeline of [North American] wind projects represents a key element of our constructive stance on CPX," Raymond James analyst David Quezada said in a recent note, in which he reiterated his "outperform" rating and $30 target price on the shares.

Veritas Investment Research is also positive: "Given its commitment to return significant amounts of capital to shareholders through fiscal 2020, combined with the long-term advantage of a young asset fleet, we believe CPX is an appealing income investment," said Darryl McCoubrey, who has a "buy" rating and $29.50 intrinsic value estimate on the shares.

In addition to the above, there is an excellent article on seekingalpha that goes into the financial details.

Note:

I bought shares of EMP.A (Sobeys) 2 years ago and its been dead money. The dividend yield is quite low (1.7%) and the dividend growth has been pathetic @ 0.5% per year. They really screwed up the purchase of Safeway Canada.

As for XTC, I bought the shares in January 2017, and I'm underwater about $600. I'm pissed with myself that the market has boomed and this has been shit.

6 comments:

  1. ADY -

    Congrats on the purchase, that's a massive position!

    -Lanny

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    1. Thanks! I'm not a big fan of high yielding dividend stocks, but I certainly like the current dividend yield plus the estimated 7% growth. I also like that they are transitioning from coal to green energy (the Alberta government will be giving then about $730 million over 10 years to compensate them for this).

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  2. CPX was one of my first stocks I ever purchased when I started investing back in 2014. So far it's done well. I keep telling myself I should get some more of it.

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    1. Nice to meet a fellow shareholder. It really seems that the market is not recognizing the value of this company. Frankly, I had not heard of this company till John Heinzl mentioned it - he also holds it in his personal portfolio).

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  3. Nice buy. Awesome increase in forward dividends. High yield and price looks reasonably stable.

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    1. Yep. There are quite a few things to like about this company. I hope my big bet pays off.

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