Thursday, August 11, 2011

My Utility Stocks 2

The stocks I want to talk about today are Enbridge (TSX-TNB), Pembina (TSX-PPL), TransCanada (TSX-TRP) and Veresen (TSX-VSN) that are my Pipeline Stocks. By and large, pipelines utility stocks tend to provide a better return than power generation utility stocks

First of all, I would like to mention that the Globe and Mail today had a video called Like dividends but hate market volatility?. I cover all the stocks mentioned on this video in my entries of yesterday and today.

I have had Enbridge Inc. (TSX-ENB) since 2005 and I have made a total return on this stock of 17% per year. Enbridge recently split their shares are a 2 for 1 basis. At first, as what usually happens, this had the effect of increasing the share price. However, since then, the stock price has come down as has the whole market.

The Dividend Payout Ratio (DPR) for this stock is good. The 5 year median DPR for earnings is 63% and for cash flow is 33%. This is always an important measure for dividend paying stock. The dividend growth rates for this stock are around 10%. The current dividend yield is a healthy 3.2%. The 5 year median dividend yield is 3.3%. See my spreadsheet at enb.htm.

The only one of the lot that I am concerned about is Pembina Pipelines Corp (TSX-PPL). That is because The Dividend Payout Ratios are high. The 5 year median DPR for earnings is 138% and the 5 year median DPR for Cash Flow is 97%. The ratios for 2010 were 138% for earnings and 102% for cash flow. The DRPs for 2011 are expected to be 162% for earnings and 95% for cash flow. (See my site for information on Dividend Payout Ratios).

However, there are a couple of things to mention in this regard. First of all this company used to be an income trust and payouts were then based on Distributable Cash. However, even using Distributable Cash, The 5 year median DPR was still high at 97%. The other thing is that the corporation has a tax pool and they will not have to actually pay taxes until 2014 or 2015. They have until that time to get their DPRs down to a more reasonable level.

The company did not decrease its dividend on the switch to a corporation. Before they had to switch to a corporation they had a good record of dividend increases. However, since 2009 there has been no dividend increases and it would appear that there cannot be for some time. However, their current yield of 6.1% is good.

I have had this stock since 2001 and have made a total return of 18% per year. Probably just over 10% of that return would be attributable to dividends. I still feel that this was a good investment for me, but I will keep an eye on stock for possible future problems. See my spreadsheet at ppl.htm.

The next stock to talk about is TransCanada Corp (TSX-TRP). This has a higher dividend yield than Enbridge, but a lower dividend growth rate. The current dividend yield is 4.1% and the dividend has grown over the past 5 and 10 years at 5.3% and 7% per year. The most recent increase was at 5%.

Trans Canada Corp also has good Dividend Payout Ratios. The 5 year median DPR on earnings is 59% and the on cash flow is 31%. This stock has been hit by the recent bear market, but is recovering nicely. It is up around 6% so far this year, so this is good. I have bought this stock in 2000 and 2006 and have made a total return of 11.7% per year. See my spreadsheet at trp.htm.

Also Dividend Girl is talking about this stock today. See her blog.

The last stock to talk about is Veresen Inc. (TSX-VSN). This is my most recent pipeline stock purchase and I bought it, as Fort Chicago Energy Partners in 2008. Because I got it for a good price, I have a total return on this stock of 45% per year. The dividend portion of this return is probably over 10% per year.

This company also did not lower their distributions on the change to a corporation. Because of this they do have very high Dividend Payout Ratios based on earnings. The 5 year median DPR on earnings is 181% and on cash flow is 60%. The expected DPR for 2011 is 179% for earnings and 72% for cash Flow. Their DPR for cash flow is ok, but it is too high for earnings.

No one expects their DPR from earnings to come into line anytime soon. They have not raised their dividends since 2008 and although the dividend yield is very good at 7.5%, they are unlikely to raise their distributions anytime soon. The company has stated that they prefer to grow cash flow rather than raise distributions in the near term. See my spreadsheet at vsn.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.

1 comment:

  1. Great job on providing all the details regarding these pipeline plays.

    I have positions in both ENB and TRP. I think they're both great companies.

    I prefer Inter Pipeline (IPL.UN) over Pembina. It's a Pipeline play that accounts for almost 1% of my net worth.

    Nice post!