Wednesday, April 12, 2017

Pembina Pipelines Corp

Sound bite for Twitter and StockTwits is: Dividend growth utility. Price is relatively reasonable but above the median to relatively expensive. 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.

One thing you need to watch on this stock is that the shares have increased lots over the past 5 and 10 years. This is nothing bad in itself, but if you are looking for how this stock has grown you really need to look at per share values. The Shares have grown at 18.8% and 12.1% per year or have grown by 136% and 215% over the past 5 and 10 years.

This does make a difference. Let's take a look at revenue. Revenue has grown at 20.5% and 28.9% per year over the past 5 and 10 years. However, Revenue per Share has grown at 1.5% and 15% per share over the same time period. The real growth in revenue is the per share growth.

One thing that annoyed me when updating my spreadsheet is that the company's report reduces values to millions. Even the number of shares is reduced to millions. Look at the stock based options. The report has them at 1 million for 2016. Since this is a rounded number the value could be anywhere from $20.9M (.5M shares) to say 58.7M (1.4M shares). This is a difference of $38M and no small sum. If I took them to two decimal points the variation could be to $62.52M (1.49M shares) or some $42M.

After changing from an Income Trust it kept its dividends flat for two years and then began to raise them again. The current dividend yield is 4.67%. This is a good dividend yield. The 5 year median dividend yield is also good at 5%. The dividend yield has always been good. However, it will never go back the yield of when it was an Income Trust.

The dividend growth is low. The growth in dividends over the past 5 and 10 years is 3.5% and 5.7% per year. Due to the high yield this stock started with and the dividend increases, the dividends I have received have cover my initial stock cost by 184%. I have also made a total return of 16.98% per year with 7.53% from dividends and 9.45% from capital gains. Going forward the portion of the total return in dividends will be lower.

One problem I see is the Dividend Payout Ratio for EPS. The DPR for EPS for 2016 is 187 % and the 5 year one is 170%. These are much too high. However, most analysts are still looking at DPR for AFFO rather than EPS. The 2016 DPR for AFFO is 74% with a 5 year value of 74%. They also think that EPS will grow sufficiently over the next two years so that the DPR for EPS will be below 100%.

I already touched on my other concern which is the lack Revenue per Share growth. I must admit here as well that analysts' feel that Revenue and Revenue per Share will growth well over the next couple of years.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The vast majority are Buy recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $48.47. This implies a total return of 15.69% with 11.02% from capital gains and 4.67% from dividends.

The 5 year low, median and high median Price/Earnings per Share Ratios are 27.89, 34.56 and 42.20. The corresponding 10 year values are 23.47, 27.90 and 32.33. The historical values are 20.04, 23.50 and 26.36. I find these all too high for a utility stock. The current P/E Ratio is 25.99 based on a stock price of $43.66 and 2017 EPS estimate of $1.68. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $28.11. The 10 year low, median and high median Price/Graham Price Ratios are 1.37, 1.61 and 1.83. Here again I find the ratios high. The current P/GP Ratio is 1.35 based on a stock price of $43.66. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year Price/Book Value per Share of $1.87. The current P/B Ratio is 2.09 a values some 12% higher. The current P/B Ratio is based on a BVPS of $20.90 and a stock price of $43.66. This stock price testing suggests that the stock price is relatively reasonable, but above the median. Here I find the P/B Ratio to be at a reasonable level.

I get 5 year low, median and high Price/Adjusted Funds from Operations Ratios of 12.21, 14.16 and 16.78. The corresponding 8 year ratios are 11.58, 14.13 and 16.42. The current P/AFFO Ratio is 17.19 based on a stock price of $43.99 and 2017 AFFO estimate of $2.80. This stock price testing suggests that the stock price is relatively expensive.

Because this used to be an income trust stock, I can only test the current dividend yield against the 5 year dividend yield. The 5 year median dividend yield is 5%. The current dividend yield is 4.67% a value some 6.6% lower. This stock price testing suggests that the stock price is relatively reasonable but above the median.

In this dividend announcement from Pembina on News Wire the company talks about their recent dividend increase and new pipeline expansion projects. Geoffrey Morgan at the Financial Post talks about building a propane export terminal in Prince Rupert, B.C. The staff at Market Exclusive talks about Raymond James Financial Inc. reiterating its Outperform rating on Pembina Pipeline Corp. See what analysts are saying about this company at Stock Chase. They are mostly positive.

Pembina Pipeline Corp owns energy infrastructure assets in North America. It operates conventional oil, NGL, and oil sands pipeline systems, a natural gas gathering and processing business, NGL extraction and fractionation facilities, and a marketing business. Its web site is here Pembina Pipelines Corp.

The last stock I wrote about was about was Barrick Gold Corp. (TSX-ABX, NYSE-ABX)... learn more . The next stock I will write about will be Barclays PLC ADR (LSE-BARC, NYSE:-BCS)... learn more on Thursday, April 13, 2017 around 5 pm. Tomorrow on my other blog I will write about Dividend Changes... learn more on Thursday, April 13, 2017 around 5 pm.

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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