Sunday, February 22, 2015

Little known contender--DGAS

Welcome to my first edition of little known contender. Today we will review Delta Natural Gas Company; DGAS. If you have any questions, comments, or concerns; please note them in the comment section.

Step 1: Description

Delta Natural Gas Company, Inc. distributes or transports natural gas in central and southeastern Kentucky.
After freezing its dividends from 2002 to 2004, DGAS became a dividend contender with 10 years of continuous dividend increase. Today I will discuss whether DGAS is at fair value and if its dividend is safe.

Step 2: FUNDAMENTALS

Revenue 



DGAS is a gas utility company. Normally I would like a company that increases its revenue each year; but, DGAS’ revenue is driven by consumer demand in the Kentucky area. No demand=no revenue.  

Operating, Pretax, and Profit Margins 



Revenue can only tell you so much. A company can make billions but it means nothing if it cannot pay itself. DGAS operating margin peaked in 2012 and fell back down to 16% for the past two previous years. This is a bit disheartening but 16% operating margin is nothing to laugh about. Its pretax margin and profit margin actually increased.

 EPS & Dividend



I would normally like EPS to consistently increase but DGAS is a gas utility company. If there is no demand there is no earning. It should be noted that DGAS did a 2:1 split in 2012 so the drop in EPS is understandable. 

 Payout Ratio



DGAS EPS dividend payout ratio is relatively high ranging from 60% to 80%. Normally I would like a payout ratio of less than 60% but utility companies normally have less pricing powers than say JNJ.

Step 3: Can DGAS maintain its dividend?

Net Income 


EPS Dividend Payout Ratio means nothing if the company’s net income has been declining. You can’t pay what you don’t have…unless you borrow massive amount of debt. After a dip in 2012, DGAS net income has been steadily rising. 

Asset to Debt Ratio 


Some people like to look at Debt to Asset but I like to see it in reverse. What I want to see is a steady increase of assets. DGAS’0 assets have been rising consistently since 2012. 


DGAS net cash flow declined from 2011-2012 and then dipped in 2013. From my research, 2013 total cash flow from operating activities was relatively the same from 2012 (13,556) but it increased its net borrowing (1500) from 2012 (59). I’m not too concerned about DGAS net cash flow since it looks like a one-time borrowing to pay off its liabilities; 2013 liabilities (3,716) vs 2014 liabilities (115).

I should note that DGAS as a peculiar cash flow. It makes a majority of its money from January to March; then slows down significantly from April to September; and ramp back up from October to December. But this is Kentucky and people only buy gas when it’s cold; not the middle of spring to early fall. DGAS also withhold borrowing until the last Quarter with the last two years borrowing 1.5 million in the 4th Quarter.   

I should also note that in 2014, DGAS actually paid more in dividends than it received in net income from April through September. That is a bit for concern. DGAS mainly relies upon January to March to pay for its dividends. If DGAS has a bad first Quarter…it will probably have to borrow to pay its dividends.

Step 4: Is DGAS fairly valued?

DGAS currently has a P/E of 18.9. Looking at its competitors, ATO has a P/E of 17.7 and DUK has a P/E of 22.58. The gas utility sector has an average PE of 25. It should be noted that this sector average tend to be skewed all over the place. Some have 0 P/E while others have 600x P/E.

Conclusion: DGAS offers a unique place in the gas utilities sector. DGAS’ EPS and revenue seems to be on a cyclical trend hitting its high mark in 2008, crashing in 2009, and slowly building back up to its former highs in 2014. DGAS net income and profit-to-debt ratio have been steadily increasing but its payout ratio ranges anywhere from 60-80%. I am not sure if DGAS can keep up its abilities to grow fast enough to pay off its dividends. DGAS cash flow dipped in 2013 to pay off its liabilities but it has nicely recovered in 2014. 

Based on my novice analysis, DGAS seems to be fully valued at $20/share. DGAS is a reliable dividend company as long as it has a good first quarter. If it doesn’t, expect heavy borrowing or dividend freeze. If Kentucky has many years of warm weather; expect a dividend cut.
In conclusion, DGAS is a relatively fair value company that offers a reliable dividend stream as long as Kentucky suffers from winter. I am not sure of its growth ability and have concern for its low margin of error.

*I do not own nor plan to own DGAS. I am not a financial advisor and you should not buy, sell, or hold based on this article alone. Always do proper research before buying, selling, or holding.

*Note: I am refining my stock analyzing skill by writing these articles. Any comments or suggestion is greatly appreciated. I will start posting lesser known stock analysis on my blog on a biweekly or triweekly basis. DGAS is so unknown that even Seeking Alpha has no in-depth article on it.  

Friday, February 20, 2015

Sell-Buy-Limit Buy

I sold ARCP for a grand total of 1400. 

I bought 24 shares of JNJ at 99.40 for a total of 2392.6 (including fees). My forward 12 months dividend increased by $67.20. I will not receive JNJ dividend since I didn't buy before its ex-date.

I tapped into my reserves and have a limit order for 15 shares of BAX at $66.50/share.

Wednesday, February 4, 2015

A novice analysis on HASI

Hello Guys/Gals,

I have been getting a lot of comments/emails about CORR and HASI. I wrote a novice analysis on Corr earlier in my blog and Brad Thomas recently wrote an interesting piece on Seeking Alpha HERE.

I just wanted to take a second and talk about my second REIT; Hannon Armstrong Sustainable Infrastructure (HASI). HASI is not Solyndra or a solar panel manufacturer. HASI is a reit that "makes debt and equity investments in profitable sustainable infrastructure projects that increase energy efficiency, provide cleaner energy or make more efficient use of natural resources." In other words; HASI is a bank. But for some reason many investors think HASI is an mreit (which it's not). HASI is more of a specialty Reit.

Their money making formula is as follows:

Buy land + put in renewable resources + sell the energy to places/people = profit.

 Lets look at their strategy. The attached pictures were taken from HASI presentation at the Wells Fargo Energy symposium.

Is This High-Yield Green Energy Stock Flying Under The Radar?

Is This High-Yield Green Energy Stock Flying Under The Radar?

Is This High-Yield Green Energy Stock Flying Under The Radar?

Is This High-Yield Green Energy Stock Flying Under The Radar?

Is This High-Yield Green Energy Stock Flying Under The Radar?





Conclusion

TBDI, you just gave me a bunch of data but what does any of this mean? I'm glad you asked random reader.

Pro: 
1) high risk high reward.
2) Management has 30+ years of running renewable energy companies.
3) Management has clear goals and means of achieving their goals.
4) Dividend friendly management.
5) Relatively increasing EPS except for Q1 2014.

Con:
1) HASI is a relatively new company with a sustainable plan...but it is very speculative.
2) Renewable energy stocks suffer from shorts and lack long term investors.
3) Low oil prices will decrease HASI market price.
4) High leverage. 2:1 ratio. If management fails to meet expectations, dividends WILL be cut. 
5) Suffers from interest hike fears. Investors treat HASI as an mreit.

I currently 41 shares of HASI or 2% of my portfolio. I will eventually own 50 shares total.

If you are interested in owning or shorting HASI, the fair market value is $13.60; low $13.50; and high $15.00.

Disclaimer: I am not a financial broker, planner, lawyer, adviser, etc. LONG HASI.

Below is a copy of HASI revenue. I'm still learning excel. 

Monthly Loyal3



Time for my monthly Loyal3 buy. $200 added to UL, K, KO, PEP, and KRFT.

Below is my total investment.



$ invested 
 Shares
KO
400
9.4717
KRFT
410
6.3058
UL
1400
34.6386
K
400
6.0631
PEP
400
4.1793


My forward 12 months dividend total is $98.49. Not bad for a pure consumer staple account.