Monday, May 10, 2010

Pembina Pipelines Inc Fund

I first bought this company (TSX-PIF.UN) in December 2001 and then a small bit more in 2009. My total return on this company is 15.9% per year. The yield on this stock, like all unit trust companies, is quite high. The current yield is 9%. My yield is even higher at about 15.8%. This is because I bought this stock when it was still raising its dividend. No one expects it to raise the dividend again, any time soon.

First, lest talk about growth figures. I have used purple on the growth in dividends, because, as I said above, they are not going to increase anytime soon. I do not find that a problem, because of the high yield on this stock. However, I think that cash Flow growth is a problem area. It is not that they have not grown the cash flow, but they are issuing a lot of shares, so the cash flow per share has been growing for the last 5 and 10 years only around only 4% per year. This is rather low. Analysts expect better growth for 2010, but I should also state that expected cash flow per share for 2009 was $1.65 and it came in at $1.42.

Also, there has not been much growth in book value. This, unfortunately, is typical of unit trust companies. The 5 and 10 year growth in book value has only been 2.3% and 1.3% per year, respectively. Other growth figures I follow are revenue and earnings and these have been growing fine for this company. There is a big difference in growth in revenue and growth in revenue per share. This is because the company has been issuing shares. Of the 17% increase in shares in 2009, a little over half was for purchasing Cutback Complex. The rest was in connection with this Distribution Reinvestment Plan.

The next thing to talk about is the Liquidity Ratio and the Asset/Liability Ratio. First, the A/L Ratio is quite high at 1.78 and this ratio has a 5 and 10 year average of 1.86 and 1.89 respectively. When you first look at the Liquidity Ratio, it looks low at only 0.55. This means the current assets cannot cover current liabilities. However, the reason it is so low is because of a portion of the long term debt coming due in 2009. This debt has been rolled over. When this long term debt due in 2009 is excluded, the ratio is better at 1.31.

I feel that I have a solid investment in this stock and I will continue to hold what I have. I will not be buying more because I have enough in my portfolio. I never let any one stock get too large a proportion of portfolio. Pembina expects to convert to a corporation in July of this year.

This is the biggest Pipeline Income Fund in Canada. It is a utility. It is engaged in the transportation of light conventional and synthetic crude oil, condensate and natural gas liquids in Western Canada. Its web site is here Pembina. See my spreadsheet at pif.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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