The recent rout in energy stocks on the back of significantly weaker oil prices has created a range of buying opportunities for savvy investors in the energy patch. While the broader S&P TSX Composite Index is down 5.5% over the last month, energy stocks as a whole have dropped a massive 10% for the same period.
More surprising is that Canada’s third-largest pipeline and midstream services provider, Pembina Pipeline Corp. (TSX: PPL)(NYSE: PBA), has seen its price smashed over the same period to be down 11%. This has brought to an end a nice run-up, which over the last five years saw Pembina’s share price rocket upward by over 200%.
As a result of the recent plunge, insiders have emerged, buying up Pembina stock. CEO Michael Dilger snapped up 10,000 shares during Friday trading while three other insiders acquired 5,859 shares in the same day.
When insiders such as executives or directors are seen buying shares in a publicly listed company they manage, it is perceived by the market as an expression of confidence in the company and its outlook.
But should investors follow in their footsteps and acquire Pembina shares after its recent pullback? Let’s take a closer look at Pembina to determine whether the time to invest is now.
Continues to unlock value for shareholders
An important aspect of Pembina’s operations has been the company’s ability to consistently unlock value for shareholders and deliver strong financial results. Pembina’s revenue continues to grow year over year as does its EBITDA, which is a measure of core profitability.
The secret to Pembina’s ability to unlock value has been the ongoing expansion of its pipeline network, by extending its geographical reach and throughput capacity. This has seen throughput continue to grow year over year, allowing Pembina to “clip the ticket” on ever-increasing volumes of crude, natural gas liquids, and natural gas transported.
I also expect Pembina to grow earnings over the long term with Canadian crude production between now and 2030 forecast to grow by 4% per annually. This will create greater demand for pipeline transportation capacity, which is already under significant pressure with insufficient capacity to meet current production.
Pembina also possesses a wide, multifaceted economic moat that allows it to retain its competitive advantage. This is because the crude transportation, pipeline, and midstream services industry has particularly high barriers to entry due to the significant capital investments required and high degree of regulation. These aspects protect Pembina from competition and bolster its ability to grow earnings over the long term.
Consistently growing dividend
Pembina continues to reward shareholders by way of a steadily growing dividend, which it has hiked for the last three consecutive years, giving it a juicy dividend yield of 3.7%. More importantly, its dividend has steadily grown since inception with a compound annual growth rate of 4%. This is greater than the annual average rate of inflation over the same period, ensuring investors’ real rate of return is not eroded by inflation.
The recent pullback in Pembina’s share price offers investors the opportunity to invest in a quality company with solid growth prospects; a wide, multifaceted economic moat; and a solid underlying business. Recent insider buying is a clear signal that management sees a bright future for the company because of these attributes. This makes now the time for investors to take the plunge and add Pembina to their portfolio.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Matt Smith has no position in any stocks mentioned.