I’ve long admired Pembina Pipeline Corporation (NYSE:PBA and TSX:PPL) and owned them a few years ago. A goal has been to increase my wealth enough to get the income I want by holding firms such as Pembina that pay somewhat less and carry less risk.
I'm a bit late to comment on this article but it is well written.. I'd consider buying a bit more Pembina to reach the same size as my Keyera position.
Thanks for this article. I don't need that much income right now from my investments, so I am inclined to start building a position in PBA. However, my biggest hesitation is that I am not sure how I will monitor the health of my investment over time, given that you are not invested. Are their a handful of simple metrics I could monitor for PBA, which could serve as "canary in the coal mine" should they start to go off track?
A couple things here. First, I would be willing to do an annual article on PBA and likely will do that anyway. They will certainly be under consideration next December for my expanded GoFishing portfolio. If I seem to have forgotten them at some point, remind me. In the meantime just pay attention to the debt. If they go into wild and crazy growth mode, then I would want to look more closely anyway. If I do not mention it then point it out.
That is awesome, thank you. I am actually trying to reduce the number of holdings, but in this case, I am going to make a exception and start adding PBA. I think more energy/midstream exposure will help me, so I will start buidling a small position on any weakness.
Great article, thank you RPD. I have little to comment. I do own ET next to EPD and TRP, and although I agree with your assessment on each of them, I do assess the higher yields on ET to be with it, for now, but would leave if I see major bad moves from the c-suite.
You did give me something to think about when it comes to EV/EBITDA vs P/EBITDA for valuation. In private companies, and even more so private equity, EV/EBITDA is THE metric used. I never thought of it at all as a liquidation value. That’s something I need to ponder about over a weekend :)
And thank you for always going back to what really matters; ROE, sources of funds, and effective use of other people’s money. Every investor should looks at that first before going for the multiples
One of my measures is how management talks about dividends. I held ARX for a while, narry a mention about dividends. I switched to TOU as a similar company but with some management focus on dividends. It was a comment from you that prompted me to make the change.
So how does this management talk about dividends? Their five year history seems relatively flat with a change from monthly to quarterly a year ago which makes it harder to eyeball, but still seem like it is flat to me. Has management expressed dividend growth as a focus for them?
“Our dividend is core to Pembina's investment proposition, and we recognize that our investors depend on it. In that regard, our objective is to produce sustainable, reliable and growing dividends, which is supported entirely by our fee-based business. Our next call for capital is on accretive gross capital.” When I first saw a recommendation of PBA by a portfolio guy, more than 5 years ago, he mentioned their commitment to growing dividends.
Right now I am in ENB and not PBA because I want that extra 200 bps of interest. Right now it matters a lot. Ideally that will change and I will switch. We will see.
To my mind those two are very different stories. TRP has, comparatively, a lot of debt. They took that on to execute a group of growth projects and to handle the Coastal GasLink cost over-run. They are following a clear plan to reduce the debt, but the market remains in "show-me" mode and has them priced lower than their peers. So the yield is higher. I am happy to own TRP.
ET carries a more moderate amount of debt but is discounted by the market and so pay a higher yield. They are discounted, in my view, because they are not trusted to look out for shareholder interests. They are prone to big acquisitions and to getting into various spats that create more bad publicity than does the rest of the midstream space combined. This does not seem like a path to most success to me. I don't want such headlines from my holdings and don't trust the management, so I don't hold ET.
I'm a bit late to comment on this article but it is well written.. I'd consider buying a bit more Pembina to reach the same size as my Keyera position.
Thank You. I Always Enjoy Your Articles.
Thanks for reading, Cap'n!
Thanks for this article. I don't need that much income right now from my investments, so I am inclined to start building a position in PBA. However, my biggest hesitation is that I am not sure how I will monitor the health of my investment over time, given that you are not invested. Are their a handful of simple metrics I could monitor for PBA, which could serve as "canary in the coal mine" should they start to go off track?
A couple things here. First, I would be willing to do an annual article on PBA and likely will do that anyway. They will certainly be under consideration next December for my expanded GoFishing portfolio. If I seem to have forgotten them at some point, remind me. In the meantime just pay attention to the debt. If they go into wild and crazy growth mode, then I would want to look more closely anyway. If I do not mention it then point it out.
That is awesome, thank you. I am actually trying to reduce the number of holdings, but in this case, I am going to make a exception and start adding PBA. I think more energy/midstream exposure will help me, so I will start buidling a small position on any weakness.
Great article, thank you RPD. I have little to comment. I do own ET next to EPD and TRP, and although I agree with your assessment on each of them, I do assess the higher yields on ET to be with it, for now, but would leave if I see major bad moves from the c-suite.
You did give me something to think about when it comes to EV/EBITDA vs P/EBITDA for valuation. In private companies, and even more so private equity, EV/EBITDA is THE metric used. I never thought of it at all as a liquidation value. That’s something I need to ponder about over a weekend :)
And thank you for always going back to what really matters; ROE, sources of funds, and effective use of other people’s money. Every investor should looks at that first before going for the multiples
Thanks, Johan, for the thoughtful comment. No issues here with holding ET, if it works for you.
One of my measures is how management talks about dividends. I held ARX for a while, narry a mention about dividends. I switched to TOU as a similar company but with some management focus on dividends. It was a comment from you that prompted me to make the change.
So how does this management talk about dividends? Their five year history seems relatively flat with a change from monthly to quarterly a year ago which makes it harder to eyeball, but still seem like it is flat to me. Has management expressed dividend growth as a focus for them?
From their recent investor day:
“Our dividend is core to Pembina's investment proposition, and we recognize that our investors depend on it. In that regard, our objective is to produce sustainable, reliable and growing dividends, which is supported entirely by our fee-based business. Our next call for capital is on accretive gross capital.” When I first saw a recommendation of PBA by a portfolio guy, more than 5 years ago, he mentioned their commitment to growing dividends.
Thank you sir!
If you owned both PBA and ENB
would you sell your PBA and move it to ENB?
Right now I am in ENB and not PBA because I want that extra 200 bps of interest. Right now it matters a lot. Ideally that will change and I will switch. We will see.
From your graph can you briefly comment on:
TRP
ET
both yielding > 7%
To my mind those two are very different stories. TRP has, comparatively, a lot of debt. They took that on to execute a group of growth projects and to handle the Coastal GasLink cost over-run. They are following a clear plan to reduce the debt, but the market remains in "show-me" mode and has them priced lower than their peers. So the yield is higher. I am happy to own TRP.
ET carries a more moderate amount of debt but is discounted by the market and so pay a higher yield. They are discounted, in my view, because they are not trusted to look out for shareholder interests. They are prone to big acquisitions and to getting into various spats that create more bad publicity than does the rest of the midstream space combined. This does not seem like a path to most success to me. I don't want such headlines from my holdings and don't trust the management, so I don't hold ET.
thanx Paul