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Is Pembina Pipeline Corp. the Top Growth and Income Play in the Pipeline Industry?

Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA), one of the leading transportation and service providers to North America’s energy industry, announced second-quarter earnings results after the market closed on August 6, and its stock has remained relatively flat in the trading sessions since. The company’s stock still sits more than 29% below its 52-week high of $53.04 reached back in September 2014, so let’s take a closer look at the results to determine if we should consider establishing positions today.

Lower propane prices lead to year-over-year declines

Here’s a summary of Pembina’s second-quarter earnings results compared with its results in the same period a year ago.

Metric Q2 2015 Q2 2014
Earnings Per Share $0.09 $0.21
Net Revenue $351 million $360 million

Source: Pembina Pipeline Corp.

Pembina’s earnings per share decreased 57.1% and its net revenue decreased 2.5% compared with the second quarter of fiscal 2014. These year-over-year declines can be attributed to lower commodity prices, including the market price of propane falling almost 60% compared with the year-ago period.

This led to its net revenues decreasing 34.4% to $99 million and its operating profit decreasing 34.4% to $86 million in its midstream segment, which could not be offset by gains in all three of its other operating segments, including net revenues increasing 24.6% to $152 million and operating profit increasing 32.5% to $102 million in its conventional pipelines segment.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Net income decreased 44.2% to $43 million
  2. Total revenue decreased 24.5% to $1.21 billion
  3. Net revenues increased 4.2% to $50 million and operating profit increased 6.1% to $35 million in its oil sands & heavy oil segment
  4. Net revenues increased 25.6% to $49 million and operating profit increased 34.6% to $35 million in its gas services segment
  5. Total throughput volume increased 3% to 1,695,000 barrels of oil equivalents per day
  6. Earnings before interest, taxes, depreciation, and amortization decreased 3.8% to $226 million
  7. Adjusted cash flow from operating activities decreased 7.9% to $176 million
  8. Ended the quarter with $204 million in cash and cash equivalents, an increase of 385.7% from the beginning of the quarter

Pembina also announced that it will be maintaining its monthly dividend of $0.1525 in August, and it will be paid out on September 15 to shareholders of record at the close of business on August 25.

Should you buy or avoid Pembina today?

It was a fairly weak quarter overall for Pembina, but its shares have fallen dramatically over the last year, so I think its flat performance since the release means its shares have bottomed. With this being said, I think it represents a great investment opportunity for the long term because its stock trades at inexpensive forward valuations and has a very high dividend yield.

First, Pembina’s stock trades at 31.9 times fiscal 2015’s estimated earnings per share of $1.17 and 26.1 times fiscal 2016’s estimated earnings per share of $1.43, both of which are inexpensive compared with its long-term growth potential, and the latter of which is inexpensive compared with its five-year average price-to-earnings multiple of 31.3. I also think these estimates will rise significant as commodity prices recover over the next 12 months.

Second, Pembina pays an annual dividend of $1.83 per share, which gives its stock a 4.9% yield at today’s levels. The company has also increased its annual dividend payment for three consecutive years, and its 5.2% increase in May puts it on pace for 2015 to mark the fourth consecutive year with an increase, and its consistent cash flow from operations could allow this streak to continue for the next several years.

With all of the information above in mind, I think Pembina Pipeline represents one of the best growth and income plays in the energy sector today. Foolish investors should strongly consider beginning to scale in to long-term positions over the next couple of trading sessions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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