I know it is early for me to publish today, but it now or never. I have a very busy afternoon, but first I have to go out to lunch with a friend. This is sometime I always love to do. The only thing better than going out to lunch with friends, is going to out to dinner with friends.
I bought this stock (TSX-PPL) in December 2001 for my Trading Account and for my RRSP Account. I have made a return of 17.4% per year on this stock. Pembina used to be an Income Trust (TSX PIF.UN), but changed to a corporation in mid-2010. They did not change their dividend at conversion, but this is a possibility in 2014 if they do not have sufficient earnings and cash flows.
They are paying a dividend that is higher than both the earnings and cash flow. The reason they can do this is because they have tax pool that will pay taxes until 2014. By that time, they will have to increase earnings and cash flow or they will have to reduce dividends to get their payout ratios to normal levels.
Increases in Dividends should not be expected anytime soon. They are still paying a healthy 6.7% dividend yield. It should be expected, that over time, dividend yield would decrease into the 4% to 5% range. Either stock price will rise or dividends will decrease to get there. The company says that it can maintain the current dividend until the end of 2013.
According to some analysts, earnings and cash flow will not even be close to covering the current dividend by 2012. Others think that earnings will improve in 2013. The earnings estimate for 2010 were $1.08 and they came in at $1.14. Average earnings estimates for 2011 and 2012 are $.82 and $.90. However, cash flow estimates in 2010 were fairly accurate, where estimate was for $1.56 and it came in at $1.52. Dividends are currently at $1.54.
Most of the growth figures are good to very good, expect for Book Value. As for most unit trust type companies, book value has not grown over the past 5 and 10 years. First, let’s talk about Revenue, which has the best growth rates. Over the past 5 and 10 years, revenues per share have growth at the rate of 24% and 15% per year, respectively. Next, we can talk about total return; over the past 5 and 10 years, total return has been at 14% and 19% per year, respectively. About 7.8% to 9.8% of these total returns would be in dividends.
Earnings have grown over the past 5 and 10 years at 12% and 4% per year, respectively. Cash flow has grown over the past 5 and 10 years at 8% and 5% per year, respectively. As you can see, the growth in this company was quite good, except for book value. Once this company has been a corporation for a while, this should grow also. I should also point out that this company has paid a lot out in distributions to its policyholders since it went public in 1997.
Until recently, the Liquidity Ratio was low with a median ratio of around 0.66. However, for the year ending in 2010, the Liquidity ratio was very good 2.02. The Asset/Liability Ratio has always been good and was at 1.73 at the end of 2010. It has a median ratio of 1.78 over the past 5 years. Both the Leverage Ratio at 2.38 and the Debt/Equity Ratio at 1.38 are ok.
The last thing to talk about is the Return on Equity. The ROE at the end of 2010 was 15.8% and the 5 year median ROE was 15.7%. Both these ratios are good.
I have been pleased with my investment in this company and I will continue to hold the shares that I have. I will not be buying anymore as I have enough. So far, this has been a very good investment for me. However, I would expect the return to be lower in the future than the 17% per year total return I have made in the past.
I note that blogger Dividend Girl has Pembina stock.
This is the biggest Pipeline Income Fund in Canada. It is a utility. It is engaged in the transportation of light conventional and synthetic crude oil, condensate and natural gas liquids in Western Canada. 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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