Friday, April 22, 2016

Pembina Pipelines Corp.

Sound bite for Twitter and StockTwits is: Price could still be reasonable. On some measure this stock looks expensive, but the dividend yield is high and would seem to be solid. See my spreadsheet on Pembina Pipelines Corp.

I own this stock of Pembina Pipelines Corp. (TSX-PPL, NYSE-PBA). In December 2001 I thought it would be a good time to purchase this stock as the market was relatively low. Pipeline stocks are conservative and the return on this one was good at 9.7%. When I purchased this stock it was an Income Trust company.

When this company changed to a corporation from an Income Trust, they just kept their dividends level for a couple of years, then return to increasing the distributions. The increases are not large, but they are increasing the distributions. The dividend growth over the past 5 and 10 years is at 2.4% and 5.4% per year.

Why the 5 year dividend growth is low is because these 5 years include years with no increases a couple with increases less than 2%. The last dividend increase in 2016 was for 4.9%.

The EPS do not cover the dividends. They are still not expected to cover the dividends within the next few years. The Dividend Payout Ratio for 2015 was 175%. The coverage for cash flow was better at 44.6%. Most analysts are looking at AFFO and the coverage for AFFO was 70.8% in 2015. This is a good AFFO coverage.

I have done very well with this stock. I have total return of 16.98% per year with 8.71% per year from capital gains and 8.27% per year from dividends. The dividends I have received today cover the cost of my stock by some 167%. However, I do not think that the future will look like to past. When I bought the stock the dividend yield was just over 9%. The dividend is currently at 5.1% and will most likely not get as high as it has in the past.

I also made capital gains when the company went from an Income Trust to a Corporation. Most of these companies saw dividend yields drop because of stock price increases. This onetime event will not occur again. A lot of utilities make a return of around 8%. However, some pipeline companies, like Enbridge Inc. (TSX-ENB, NYSE-ENB) have done much better than 8%.

I find 5 year low, median and high median Price/Earnings per Share Ratios at 27.89, 32.30 and 35.28. The corresponding 10 year P/E Ratios are lower at 20.57, 24.44 and 28.30. The historical P/E Ratios are also lower at 19.92, 23.04 and 26.15. The current P/E Ratio is 29.48 based on a stock price of $37.74 and 2016 EPS estimate of $1.28. I think that the P/E ratios for the past 5 and 10 years are rather high for a utility. Even at that, the current P/E is above the median high P/E Ratios over the last 10 years or historically. This is suggesting that the stock price is relatively expensive.

I get a Graham Price of $23.94. The 10 year low, median and high median Price/Graham Price Ratios are 1.29, 1.54 and 1.74. The current P/GP Ratio is 1.58 based on a stock price of $37.74. This suggests that the stock price is relatively, reasonable, but above the median. I think that the P/GP Ratios are all rather high.

I get a 10 year Price/Book Value per Share Ratio 1.93. The current P/B Ratio is 1.90 based on a stock price of $37.74 and BVPS of $19.90. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median P/S Ratio 2.74 and the current P/S Ratio at 2.48 based on a stock price of $37.74 and Revenue estimates for 2016 of $5,687M and 15.25 Revenue per Share. The current P/S is some 9.8% lower than the 10 year median. This testing suggests that the stock price is relatively reasonable and below the median.

I cannot do much testing of the stock price using dividend yield. This is because this stock used to be an income trust and income trusts had higher dividend yields than corporations. However, it was felt that old income trusts would end up with dividend yields of 4 to 5%. This stock has a slightly higher dividend yield at 5.09%. I note that the 5 year median dividend yield is 5%. Because the higher the dividend yields the better the stock price, this testing would suggest that the stock price is cheap to reasonable.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The Buy recommendations are 10 to 1 for both Strong Buy and Hold. The consensus recommendation would be a Buy. The 12 month stock price consensus is $40.08. This implies a total return of 11.29% with 5.09% from dividends and 6.20% from capital gains based on a current stock price of $37.74.

This BOE report talks about a recent Asset Acquisition by this company. Brenton Akerman at Share Trading News talks about recent analysts' recommendations. Davin Research at Seeking Alpha gives an analysis of this stock. He likes it better than TransCanada Corp. (TSX-TRP, NYSE-TRP) or Enbridge Inc. (TSX-ENB, NYSE-ENB), but his preference is in Inter Pipeline Ltd. ( TSX-IPL, OTC-IPPLF). There are some analysts' comments on this stock at Stock Chase.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

On my other blog I last wrote about recent advice to sell for coming bear market... learn more . The next stock I will write about will be Canadian Natural Resources (TSX-CNQ, NYSE-CNQ)... learn more on Monday, April 25, 2016 around 5 pm.

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 Corp.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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