Enbridge Inc. (TSX:ENB)(NYSE:ENB) and Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA) are two of North America’s largest owners and operators of pipelines and storage facilities for the oil and natural gas industries. Both stocks represent great long-term investment opportunities today, but the laws of diversification state that we cannot own both, so let’s take a closer look at the companies’ first-quarter earnings results, their stocks’ valuations, and their dividend yields to determine which stock is the better buy today.
Enbridge’s stock has fallen about 7% year-to-date and it has remained relatively unchanged since it announced its first-quarter earnings results on the morning of May 6. Here’s a summary of 10 of the most notable statistics from its report compared to the year-ago period:
- Adjusted net income decreased 4.9% to $468 million
- Earnings per share decreased 6.7% to $0.56
- Revenue decreased 24.6% to $7.93 billion
- Average deliveries increased 16.1% to 2.21 million barrels per day in its Canadian Mainline segment
- Average deliveries increased 21.5% to 815,000 barrels per day in its Regional Oil Sands System segment
- Average deliveries decreased 18.5% to 150,000 barrels per day in its Spearhead Pipeline segment
- Average throughput volume increased 4% to 1.86 billion cubic feet per day in its Vector Pipeline segment
- Average throughput volume decreased 16.4% to 1.15 billion cubic feet per day in its Enbridge Offshore Pipelines segment
- Gas distribution sales increased 43.2% to $1.59 billion
- Cash provided by operating activities increased 353.5% to $1.51 billion
At today’s levels, Enbridge’s stock trades at 25.2 times its median earnings per share outlook of $2.20 for fiscal 2015 and 20.9 times analysts’ estimated earnings per share of $2.65 for fiscal 2016, both of which are inexpensive compared to the industry average price-to-earnings multiple of 26.3 and its five-year average multiple of 39.3.
In addition, Enbridge pays a quarterly dividend of $0.465 per share, or $1.86 per share annually, giving its stock a 3.35% yield at current levels. The company has also increased its annual dividend payment for 19 consecutive years, and it expects to increase it by 14%-16% annually through 2018, making it one of the top dividend growth plays in the market today.
Pembina Pipeline Corp.
Pembina’s stock has fallen about 7% year-to-date and it too has remained relatively unchanged since it announced its first-quarter earnings results after the market closed on May 5. Here’s a summary of 10 of the most notable statistics from its report compared to the year-ago period:
- Net income decreased 18.4% to $120 million
- Earnings per share decreased 22% to $0.32
- Revenue decreased 34.4% to $1.15 billion
- Conventional Pipelines throughput volume increased 14.5% to 633,000 barrels per day
- Gas Services average volume processed increased 28.4% to 113,000 barrels of oil equivalents per day
- Midstream natural gas liquids sales volume decreased 3% to 129,000 barrels per day
- Operating margin decreased 18.9% to $284 million
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased 24.1% to $240 million
- Gross profit decreased 24.5% to $228 million
- Adjusted cash flow from operating activities decreased 19.3% to $213 million
At current levels, Pembina’s stock trades at 33.2 times fiscal 2015’s estimated earnings per share of $1.19 and 27.6 times fiscal 2016’s estimated earnings per share of $1.43, both of which are above the industry average price-to-earnings multiple of 26.3 and mixed compared to its five-year average multiple of 28.2.
Additionally, Pembina pays a monthly dividend of $0.1525 per share, or $1.83 per share annually, which gives its stock a 4.6% yield at today’s levels. The company has also increased its dividend for four consecutive years, and as long as commodity prices continue to recover over the next few months, I think this streak will continue in 2016.
Which is the better buy today?
After comparing the companies’ first-quarter earnings results, their stocks’ valuations, and their dividend yields, I think Enbridge represents the better long-term investment opportunity today. Pembina has a higher dividend yield, but Enbridge posted better first-quarter earnings results, and most importantly, its stock trades at much more attractive valuations, so I think it is the clear winner of this matchup. Foolish investors should take a closer look and strongly consider beginning to scale in to positions in Enbridge today.
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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 Joseph Solitro has no position in any stocks mentioned.