King-of-Kings wrote: The only stock I hold is Pembina. There. I said it. And it's a major major holding. It gives me 6 figures of dividends annually. And that's basically my retirement income. Some of you may think I'm taking too much risk by not taking a more diversified approach... but I'm very comfortable with this decision. I've lost millions of dollars in the past having invested in speculative investments but at the end this is the only stock I kept... I'm 64 and I hope Pembina will take care of my wife and I for the rest of our remaining life.... Having said that, I watch my investment like a hawk... I think oil is here to stay for a long time...
I am not happy about the switch to quarterly dividends. Having said that, I wouldn't trade my Pembia to Enbridge. Enbridge has a lot more exposures to different sectors and hard to gauge its risk profile as a result. In other words, I see it as a riskier investment. Pembina is in my opinion the only pure pipeline/utility company. It has great management and very conservative management style. So I feel very safe with my investment which allows me to sleep well at nights.
I've been accumulating Pembina since the company went public at $10 a share in the late 1990's and it's done very well for me. I've known some of the original management team members personally and I remember them often telling me this is the perfect stock for orphans and widows. Why?
I remember asking them what are the greatest risks in holding Pembina and their response was: 2 things.
1) an accident or a major leak...
2) the company is taken over...
1) in the case of an accident they said the company has insurance and is covered. Yes, the share price could suffer but it would only mean the share price is on sale and good time to add more to your position.
2) the takeover is a risk because it would be hard to find a better investment! This is how they explained this. Most of the company's revenues are pretty much guaranteed for the next 20-25 years because of the take-or-pay long term contracts. Furthermore the revenue is not based on the price of commodities. No matter what happens to the price of oil and gas, their clients must pay the fees. These fees are also regulated and prices are adjusted with inflation by the utility boards. There's also the cash cow component of the mid stream operation which basically allows the company to sell gas for the price of oil on up to 6% of the oil it transports*. And there's also some unsold capacity that can be sold at higher market prices during times of high demand. Today's tight market is a good example of this. With the lack of adequate pipeline capacity, Pembina is in a great position to maximize on this.
The risk of a takeover (while not as significant today because of Pembina's size) is that the purchaser will use Pembina's own guaranteed future revenue to pay for the takeover. And all it has to do is pay a premium of 20-40% instead on the current share price to be successful in its takeover attempt. While you as a shareholder would lose out on the next 25 years' of income that's already secured.
Sure, you make a quick gain on your shares if you're a short term trader, but as a long term investor you need to find another GEM like Pembina to invest in if you want a pretty steady and low risk investment. Not too many of those around as I explained already.
I'm glad that Pembina has grown tremendously since its inception. I remember, the company used to have a market cap of $600 million when it started. With today's market cap of close to $25-30 Billion, let's hope this risk of being taken over by a competitor is not too likely. Although anything is possible.
I know there are other investments with potentially higher returns but as i said I'm very comfortable with this
*mid stream operations are not well understood by many investors. Here's a quick explanation. When a client comes to Pembina to transport its oil, it hands over its oil at the terminal but that's not the actual oil that it will receive at the other end. Someone else's oil is what it will get. Regulations state that as lon as the end product delivered is 94% oil (ie 6% other), that's acceptable. So even if you give Pembina 100% oil Pembina is only obligated to give you back 94% pure oil. Pembina then legally injects 6% gas into its pipes mid stream and this allows it to maximize revenues. Effectively selling cheap gas for the higher price of oil. All pipeline companies do this. They don't like to talk about it much openly but it is what it is.
Pembina used to contact out this service to 3rd parties but once it got big enough, it was able to do this in-house. Pembina now owns storage facilities for gas for midstream operations and this has added some unwanted exposure to commodities price fluctuations. The overall benefit outweighs the risk...