Pembina Pipeline Corp (PPL.TO)

(Top Pick Mar 10/14, Up 7.72% total return) Not a lot of commodity risk. They are a toll road. It is an income pick. The price of the stock will not move radically up or down. They are trading off yield.

Believes this is on sale at these levels. There was some concern about the company because of cost of service. Good CapX program with $1.5 billion this year coming on stream. Another $6 billion in the next 3 years. Their cost of service business is about 70% of their cash flow, and with these projects and re-contracting this gets up to about 80% 3 years out. Yield of 4.47%.

Loves this pipeline. These are great companies. They are to report in a couple of weeks.

Has always been an admirer of some of these pipeline stocks. At the current level, it seems a bit overvalued. Dividend quality is stronger now given the pullback in the stock. Mid-$30 would be a good entry point.

He is still buying it. The key point is that 30% of mid stream business is commodity price sensitive. Management is going to reduce that to less than 20% over the next few years. It is a great dividend stock going forward.

No problems from an operational point of view, but his problem with the pipelines is valuation. 20 times earnings for 5% earnings growth. They benefited from the run to safety and this will run out in the next couple of years.

Dividend is safe. The group, by association with oil, has been hit. This one has exposure to gas growth in Western Canada, which now is a little dicier for LNG further out, so there is a little bit of bloom off of the growth. It is still going to be fine, but it was trading at a huge valuation, so it had to come off. In the short term, it will go up and down with oil/gas prices, and the stock will probably go sideways.

End of January until May of each year is the seasonal strength. Hold it as it makes a base. Or wait for technicals to be in your favour.

Energy has more of an indirect relationship to their natural gas exposure. They have been making a lot of money in the last few years, taking liquids out of natural gas. That business has been hurt to some extent, but the good news is that they have been rapidly reorganizing their business towards “cost of service” type contracts. Thinks they will get through this. They have less risk on the commodity side than they used to. If you don’t own any of these stocks, it is time to look at them.

Really likes the entrepreneurial and midstream pipelines, because they tend to do smaller projects, generally within one province which can get much more readily approved. Has owned this for a long time and thinks the yield is sustainable. It will be affected by the drop in the oil price and any movement in the price of gas, but it will only be affected in an impairment kind of way if this drop goes on for a considerable period of time.

If you don’t have the position right now and want to establish one, she would start with a half position, and then as energy kind of stabilizes, fill it up. Fairly confident in the cash flows because the projects they have in place are in long-term service agreements, so they are going to be paid regardless of what energy is doing. The concern would be if energy stayed low for a long period of time, so any potential additional projects that come on board beyond a 2 year time frame would start impacting their ability to grow their cash flow and their dividends.

He likes the infrastructure aspects around this company. There is nothing negative in their business environment that has caused the stock to sell off. Views this as a good entry point.

This is kind of a 2 edged sword. They have a nice dividend yield. Also, the stock has set back, pretty much to some good technical support from his perspective. Negatively, like all Canadian pipeline companies, it is selling at, or marginally above its FMV. Looking at the long historical sweep of the valuations, none of these pipeline companies are cheap. Because he thinks investors will continue to place a premium on income, the stock may well hold up. He would not initiate a position in this or any of the pipelines.

If oil were to base at $70, or in a worst-case scenario it is below $60 for a protracted period, he feels the dividend could survive. Yield of 4.12%.

Large holding for him. It got way ahead of itself. Big dividend. Huge number of secure projects in the `pipeline`. It got pounded with the oil price and yet it should not have had that much of an impact.