Pembina Pipelines Corp

I own this stock of Pembina Pipelines Corp. (TSX-PPL, NYSE-PBA). I first bought this company in 2001 and bought some more in 2009. I have a total return of 18.67%, with 10.59% from capital gains and 8.08%. The current dividend yield is 4.64%. When I bought the stock the dividend yield was 9.7% as it was an income trust.

This is one income trust that did not decrease the dividend when it changed to a corporation. It sort of kept it level from 2009 to 2011 and then had its first increases in 2012. It is certainly a good sign to see a company increase their dividend. Analysts feel that the dividend will continue to rise over the next few years.

The downside is that the Dividend Payout Ratios are too high. The 5 year median DPR for earnings is 148% and for cash flow is 100%. The DPR for 2013 is expected to be165% and 82% for earnings and cash flow. These are too high, especially for earnings. The negative aspect of this is a deterioration of book value, which has occurred under the company. However, the Book Value for 2012 increased because of issuance of shares to buy Provident Energy.

The outstanding shares have increased by 17.2% and 12.1% per year over the past 5 and 10 years. Shares have increased due to Share Issues, DRIP and Debenture Conversions. This will mean that values would increase at a higher right than values per share. That is Revenue will have increased faster than Revenue per Share.

Over the past 5 and 10 years Revenue has increased by 47% and 31% per year, respectively. Over the past 5 and 10 years Revenue per Share has increased by 25% and 17% per year, respectively.

Earnings per Share have not done nearly as good with the 5 year EPS growth down by 4.9% per year, but with the 10 year EPS growth up by 4.7%. However, exactly 5 and 10 years ago were quite good years for EPS and if you look at the 5 year running averages growth, the 5 and 10 years growth come in at very respectable 8% per year.

The 5 and 10 year growth in cash flow is just 2% and 3.3% per year. The 5 year running averages growth is somewhat better at 6.8% and 4.3% per year.

One thing to mention is that the 1st quarter of 2013 was a very good quarter for this company. Analysts have been very busy updating and upping their estimates for revenue, earnings and cash flows.

2012 was not a particularly good year for this stock and the Return on Equity came in at just 5.3%. The ROE on comprehensive income was close coming in at 5%. The 5 year median ROE on net income was at 15.8% and the ROE on comprehensive income was 15.6%.

The Liquidity Ratio has not been very high on this stock and the current ratio is 1.09. If you add in expect cash flow after expected dividend for 2013 you get a ratio of 1.35. It is a better ratio but not that great. The Debt Ratio has been much better and the current one is 2.24. The current Leverage and Debt/Equity Ratio are quite good at 1.81 and 0.81.

I think that the easy money has been made off of this stock. When income trusts started to change to corporations, it was felt that the dividend yields would all decline by a combination of dividend decreases and stock price increases. On this stock, the dividend yield ended up in the expected 4 to 5% range, but this was done via stock price increases.

On a go forward basis, the dividend yield is basically cut in half. You could probably expect, over the longer term approximately 4% dividend and 4% capital gain for an 8% return. I notice that the consensus stock price over the next 12 months shows only a total return of 6.07% with 4.64% from dividends and just 1.43% from capital gains. And this expected total return is after the revision for the good first quarter of 2013. So, analysts do not expect much in regards to total return for the short term.

So, analysts do not expect much in regards to total return for the short term. This probably is because of the relatively high P/E and P/CF ratios this stock has. However, this is a pipeline company and most pipeline company produce good dividends and solid returns over the longer term. I expect the same from this company. See my spreadsheet at ppl.htm.

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 Pipelines.

This is the first of two parts. Second part will be Tuesday at shown here.

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 or StockTwits.