Wednesday, February 29, 2012

Pembina Pipelines Corp 2

I own this stock (TSX-PPL). This is a stock I have done very well with. I bought shares a couple of times in December of 2001 and have made a total return of 18% per year. The dividend portion of my return is 7.5% per year. That means that some 41% of my return is in dividends.

When I look at insider trading, I find insider buying of $2.4M and a net of insider buying at $2.3M. There is a bit of insider selling. The insider trading report does not mention any stock options, but the company does issue them. Insiders are also holding convertible debentures. A lot of the insiders do have substantial amounts of shares. Both the CEO and CFO own millions of dollars in shares.

Institutions own some 15% of the shares. They have bought and sold shares over the past 3 months and currently hold 21% more shares than they had 3 months ago.

I get 5 year median low and high Price/Earnings Ratios of 12.6 and 17.0. The current P/E ratio of 25.8 shows a rather high current stock price. And I am using today’s price. The day before the P/E was 26.4 at a price of $28.75. The 10 year median low and high P/E ratios are higher, with ratios of 19.0 and 22.2. Still the current P/E ratio is high for a utility stock.

I get a Graham Price of $8.90. The current stock price of $28.15 is some 223% higher. The 10 year median high difference between the Graham Price and the Stock price is the Stock price being 35% higher. This shows a relatively high stock price.

I get a 10 year Price/Book Value Ratio of 2.38 and a current P/B Ratio of 8.91. The current one is some 373% above the 10 year median ratio and also points to a relatively high stock price. I know that the book value has been going down, but this is a really high P/B Ratio. I get a current Dividend yield 5.63. The 5 year median Dividend yield is 8.81%, which is some 36% lower. I know the dividends have been rather flat, but even the 10 year low dividend yield is higher at 7.7%.

When I look at the analysts’ recommendations, I find that they are all over the place. Recommendations include Strong Buy, Buy, Hold, Underperform (or Reduce) and Sell. The highest number of recommendations is a Buy and the consensus recommendation is a buy.

One analyst with a Reduce recommendation gave a 12 month stock price of $22. A number of analysts giving Reduce and Sell recommendations gave the reason that the stock is overpriced. No one says anything bad about the company. There are more Reduce or Underperform recommendations than sell. (There is only one Sell). All like the recent purchase of Provident.

In fact the Buy recommendations come with comments that the stock should continue to grow with Provident purchase. One analyst says that the most recent dividend increase of 3.8% reflects management's confidence in the significant operational and financial strength of the combined entity going forward.

I think this is a very good company and I am glad to hold this stock. However, I was considering selling some of my shares. The stock is definitely overpriced. However, utility type stocks tend to be high at the moment because they have nice dividends and are relatively safe.

Pembina transports crude oil and natural gas liquids produced in Western Canada. It owns and operates oil sands pipelines and has a growing presence in midstream and natural gas services sectors. Pembina holds a 50% interest in the Fort Saskatchewan Ethylene Storage Facility. Its web site is here Pembina. See my spreadsheet at ppl.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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