Pembina Stock – Which is better – Common or Preferred?

In this video we examine Pembina preferred and common stock to see which one is best. We make the decision based on today’s latest data.

In this video we examine Pembina preferred and common stock to see which one is best. We make the decision based on today’s latest data. 

The conclusion will change over time based on changes to preferred and common stock but the process of arriving to the decision is the same.  

For this video I will use the premium site. Similar information can be found in the free site.

Lets go to the Pembina Ranking page.

All metrics and data analytics fields shown in this page are updated daily (Monday to Friday) based on the latest market data for Pembina.

Notice the navigation buttons at the top of the page. These allow jumping to the start of each section, making it easier to compare information between each section on the page.

Scroll down the page to review some of the metrics we use.  Go to section “Pembina Common Share Metrics”.  As you can see the current yield on the common is 7.28%. 

In the section “Pembina Overall Preferred share Metrics” we see the following metrics

–Lowest Current Yield: PPL.PF.A @ 5.38%

-Highest Current Yield: PPL.PR.A @ 8.07%

-Average Current Yield: 6.46%

–5YR Reset Average Yield: 5.47%

Lets see the averages for the Canadian Preferreds Market and The pipeline Sector. From the menu select “Market Review”.  As you can see Todays Average Market Yield is 5.409%. Pembina’s average preferred yield is about 1% higher.

In The section “statistics by sector” locate the pipeline sector. The sector has an average Current Yield of 5.82% and Reset Yield of 5.09%. Pembina is higher in both of these metrics.

Lets go back to the “Rank Pembina Preferreds Page” and the “rank – compare tool”.

In the this section “Rank Pembina Preferreds – Compare Tool, you can see that we have a lot of metrics, but for this decision we choose to use the “blended Yield” only.

The “blended yield” is a projection of the average yield for the next five years.  We will be comparing this to a similar metric of the common stock. 

To begin with, let’s review the table by “Blended Yield” (highest yield 1st). As you can see PPL-C preferred  has the following yields: current(7.65%); reset(5.22%); and blended(6.67%). There is a 1.43% yield drop from current to reset. In terms of the yield, you are getting 7.65% until March 2024, and then for the next 5 years you will be getting 5.22%. Of course this is based on todays 5Year GOC Rate.

So the best blended yield you can expect at this point from the preferreds is 6.67%, if you pick PPL-C based on today’s rates.

Use “what if scenarios “ to see other projected yields for PPL-C . Click the button ”What if Scenarios” to get to this section.

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  Sort the table by “current yield”. PPL-C is now at the 2nd from the top. Go to the very right of the table  to see the projected yield for  Scenario 6. The 5YR Government Of Canada bond Rate is set at 1.6%. You can now see that the best case scenario is for a blended yield of 7.46%.

Click on the button “Common or Preferred”. Here you can see that Pembina has a history of increasing the common stock dividend by 5.7%.  This is based on a 16 year history of increases starting in 2005.   It ranges from a quarterly dividend of $0.261 in 2005 to $0.629 in 2020. Looking at the dividend growth rate graph you notice a plateau  of the dividend between 2009 and 2011. After that the dividend has been increasing consistently.

Based on the current Compound Annual Growth Rate of the Pembina dividend I calculate the future quarterly dividend for the next 5 years to be $0.665, $0.703, $0.743, $0.786, $0.831. Assuming the Stock price remains the same, at $34.60 over the next 5 years, the corresponding yields will be 7.698%, 8.137%, 8.601%, 9.091%, 9.609%.

One last item is to check the short position. Currently this is 4.34%. Lets see whats the short position is on a few more preferred share issuers: BNS(3.97%) , BCE (3.32%), GWO(3.15%), ENB(3.70%)All 4 seem to be around the same percentage, so there are no red flags.

There are many metrics that can be taken into consideration when making your decision. Each investor will assign different importance to each metric. For this video we are only using the expected yield for the next 5 years. Based on that it’s a clear decision. The best you can expect from the preferred is 6.67%. On the other hand the common has a current yield of  7.28% and  will provide you with increasing yields each year projected to be 7.698%, 8.137%, 8.601%, 9.091%, 9.609%.