Pembina Pipeline Corp (PPL.TO)

One of the stronger names in the Alberta midstream space. Also, has the best competitive advantages. It provides investors with a pretty conservative strategy to play and participate in the recovery of energy prices. Dividend yield of 4.94%.

(Market Call Minute.) Have shored up their balance sheet and made an acquisition. They have the properties and have a guaranteed return on them, and he thinks it is hedged to the mid-$40 by the end of the year.

(A Top Pick July 16/15. Up 3.14%.) They increased their dividend 5% this year. Have a large contracted build program over the next 3-5 years, which is going to really increase their rate base and the amount of money they are making. There is likely to be a dividend increase over the next 4-5 years.

The whole energy sector is very similar to what happened in 1979. Given the nature of commodities you get an expansion that starts, and then has to continue because the price of commodities gets so high that it doesn’t make sense not to invest and move the stuff. There was a collapse in 1980 and oil bottomed in 1998, 18 years later. China has just finished industrializing and they are now slowing. Commodities are going to be struggling for the long-term, but it doesn’t mean you can’t make money. Has stayed away from the entire energy sector, with the exception of the pipelines. This is probably a decent stock, but you are probably better off moving into Amazon, Alphabet or Microsoft, where you will make more money in the next 5 years. (See Top Picks.)

5.75% Cumulative rate reset Class A issue. He bought this for his own personal financial plan, as he likes anything above a 4% interest. The beauty of this is that the reset is in 5 years at 4.7%, and in any event won’t be lower than the 5.75%.

He likes this. They just came out with a 1^st quarter which really was pretty good. They are quite aggressive in getting into the midstream business, but equally as aggressive in trying to build up their “cost of service” business. It is felt that by 2018, 86% will be immune from commodity price fluctuations.

They bought all the processing and gathering assets and plants from Paramount, and did a financing to help pay for it. (He bought the financing at $34.) Coming off a restriction, Bay Street analysts are starting to put out Buy reports with $44-$46 targets, which is what is driving the stock higher. It could go back $1 or $2 if oil goes back to $40. If it did, this would be a Buy at $36.

Has pulled back from a longer term perspective, and recently rallied along with energy. Their assets are placed in areas where there is low cost gas. They have projects and funding in place, and long-term service agreements to back those up. Also, slowly been increasing their dividend.

PPL-T vs. ENB-T. He prefers PPL here because it is reacting better with respect to pricing. 5.5% safe dividend. A safer way to play the energy recovery.

This is a little bit expensive on a P/E basis. Got hurt with the lower oil prices, but has some great growth opportunities. Wouldn’t have any concerns with the dividends on this. Dividend yield of about 4%.

Pembina Pipeline (PPL-T) or Inter Pipeline (IPL-T)? Payout ratios are creeping up on both. Also, they are not as tied to commodity exposure as some of the other pipelines. However, it ultimately comes down to how good their counterparties are, or how good the shipping contracts are. They are getting expensive again. Probably got too cheap. At these levels he would probably be looking to taking off exposure.

Pipelines are the price makers, but they may have to give some price concessions in this current environment. They continue to show excellent results. They just raised their dividend and he expects more dividend increases.

(Market Call Minute.) Has recovered from the bottom.

(A Top Pick Feb 23/15. Down 10.82%.) Still likes this. Got up to about a 33% exposure to commodity prices, but by 2017-2018, they are going to be back to about a 15% exposure. That will be great, and given the pipeline contracts that they have, it is a good story.

The pipeline companies have held up better than some of the oil and gas producers. They have hard-to-replace assets. They pay a dividend and are dependent on the need to move oil rather than the exact price.