Is it a good company at a reasonable price? This company has served me well and I have had it for over 20 years. However, one must wonder about the long term future of a pipeline company although they are more diverse than just pipelines. The stock price is reasonable and below the median and that is a good time to buy. I will be holding on to the shares that I have. This is one of my core stocks.
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 I was updating my spreadsheet, I noticed that I have had this stock for 21 years and I have made a Total Return of 15.74% per year with 7.16% from capital gains and 8.58% from dividends. Dividends have paid for 269% of the cost of my original stock. The current dividend yield is 5.27% and I am making 23% yield on my original investment.
If you had invested in this company in December 2012, for $1,024.56 you would have bought 36 shares at $28.46 per share. In December 2022, after 10 years you would have received $763.83 in dividends. The stock would be worth $1,654.56. Your total return would have been $2,418.39.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $28.46 | $1,024.56 | 36 | 10 | $763.83 | $1,654.56 | $2,418.39 |
The current dividend yield is good with dividend growth low. The current dividend yield is good (5% to 6% ranges) at 5.82%. The 5 and 10 year median dividend yields are also good at 5.57% and 5.18%. The historical median dividend yield is high (7% and above) at 7.14%. This stock has high yields because it used to be an income trust company which always had quite high yields.
Yields, of course, were lower once the company changed form an income trust to a corporation. The dividend growth is low (below 8%) at 4.77% per year over the past 5 years. The last dividend increase was in 2022 and it was for 3.6%. In 2023, this company change their dividend frequency from monthly to quarterly.
The Dividend Payout Ratios (DPR) are fine, and they seem to be in the process of lowering rates, especial the one for EPS. The DPR for EPS for 2022 is 50% with 5 year coverage at 109%. The DPR for Adjusted Funds from Operations (AFFO) for 2022 is 53% with 5 year coverage at 54%. The DPR for Funds from Operations (FFO) for 2022 is 48% with 5 year coverage at 51%. The DPR for Cash Flow per Share (CFPS) is 42% with 5 year coverage at 43%. The DPR for Free Cash Flow (FCF) for 2022 is 66% with 5 year coverage at 94%.
Debt Ratios are fine. The Long Term Debt/Market Cap is good at 0.40. The Liquidity Ratio is low at 0.67, but if you add in Cash Flow after Dividends, it is better at 1.41. However, I like this ratio to be 1.50 or higher. The Debt Ratio is high and good at 2.01. The Leverage and Debt/Equity Ratios are low and good at 1.99 and 0.99.
The Total Return per year is shown below for years of 5 to 25 to the end of 2022. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2017 | 5 | 4.77% | 5.52% | 0.21% | 5.31% |
| 2012 | 10 | 4.70% | 10.83% | 4.91% | 5.92% |
| 2007 | 15 | 4.17% | 13.80% | 6.63% | 7.17% |
| 2002 | 20 | 4.54% | 15.72% | 7.46% | 8.26% |
| 1997 | 25 | 6.25% | 20.22% | 8.52% | 11.70% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 15.29, 17.16 and 19.04. The corresponding 10 year ratios are 18.95, 20.82 and 23.05. The corresponding historical ratios are 1905, 21.64 and 23.94. The current ratio is 15.51 based on a stock price of $44.81 and EPS estimate for 2023 of $2.89. This ratio is below the low ratio of the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I also have Funds from Operations (FFO) data. The 5-year low, median, and high median Price/ Funds from Operations Ratios are 7.26, 8.64 and 10.21. The corresponding 10 year ratios are 9.20, 10.84 and 12.99. The current P/FFO ratio is 8.45 based on a stock price $44.81 and FFO for the last 12 months of $5.30. This ratio is below the low ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I also have Adjusted Funds from Operations (AFFO) data. The 5-year low, median, and high median Price/Adjusted Funds from Operations Ratios are 7.99, 9.50 and 11.13. The corresponding 10 year ratios are 10.00, 11.77 and 13.45. The current P/AFFO ratio is 9.47 based on a stock price $44.81 and AFFO estimate for 2023 of $4.73. This ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $51.15. The 10-year low, median, and high median Price/Graham Price Ratios are 0.82, 0.91 and 1.08. The current P/GP Ratio is 0.88 based on a stock price of $44.81. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10-year median Price/Book Value per Share Ratio of 1.71. The current P/B Ratio is 1.82 based on a Book Value of $13,251M, Book Value per Share of $24.58 and a stock price of $44.81. The current ratio is 6% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have a Book Value per Share estimate for 2023 of $28.20. This implies a P/B Ratio of 1.59 with a stock price of $44.81 and Book Value of $15,510M. This ratio is 7% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 11.36. The current P/CF Ratio is 9.64 based on Cash Flow per Share estimate for 2023 of $4.65, Cash Flow of $2,558M and a stock price of $44.81. The current ratio is 15% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 7.14%. The current dividend yield is 5.82% based on dividends of $2.61 and a stock price of $44.81. The dividend yield is 18% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median. The problem with this test is that this company used to be an income trust as these companies can have much higher dividends than corporation.
I get a 10 year median dividend yield of 5.18%. The current dividend yield is 5.82% based on dividends of $2.61 and a stock price of $44.81. The dividend yield is 13% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10-year median Price/Sales (Revenue) Ratio is 2.93. The current P/S Ratio is 2.44 based on Revenue estimate for 2023 of $10,108M, Revenue per Share of $18.38 and a stock price of $44.81. The current ratio is 17% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable and below the median. The 10 year median dividend yield test says this and it is confirmed by the P/S Ratio test. Other tests are saying it is either cheap or reasonable. The P/AFFO Ratio and P/FFO Ratio tests are considered to be better than the P/E Ratio test.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (5) and Hold (6). The consensus would be a Buy. The 12 months stock price consensus is 51.18. This implies a total return of 20.04% with 14.22% from capital gains and 5.82% from dividends based on a current stock price of $44.81.
This stock is well liked by analysts on Stock Chase. Stock Chase gives this stock 5 stars out of 5. It is number 43 on the Money Sense List. Robin Brown on Motley Fool says to buy this for passive income. Kay Ng on Motley Fool says to buy for growing passive income. Pembina Pipelines put out a press release on their 2022 results on World Pipelines.
A Simply Wall Street on Yahoo Finance looks at this company’s Return on Equity. Simply Wall Street gives this stock 3 stars out 5. It lists 3 warnings of earnings are forecast to decline by an average of 11.5% per year for the next 3 years; has a high level of debt; and large one-off items impacting financial results.
Pembina Pipeline is a midstream company serving the Canadian and North American (primarily Bakken) markets with an integrated product portfolio. The firms' assets include pipelines and gas gathering as well as assets across fractionation, storage, and propane exports. Its web site is here Pembina Pipelines Corp.
The last stock I wrote about was about was Barrick Gold Corp (TSX-ABX, NYSE-GOLD) ... learn more. The next stock I will write about will be Canadian Natural Resources (TSX-CNQ, NYSE-CNQ) ... learn more on Wednesday, April 26, 2023 around 5 pm. Tomorrow on my other blog I will write about Deposits at Canadian Financial Institutions.... learn more on Tuesday, April 25, 2023 around 5 pm.
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