Thursday’s TSX breakouts: A defensive stock with a 4.6% yield and up to 21% upside potential

On Wednesday, the S&P/TSX composite index gained 88 points, or 0.60 per cent to close at 14,840. There were 163 securities in the TSX Index that advanced, 80 securities declined in value, and four stocks closed the day unchanged. In terms of sectors, eight sectors closed higher, led by gains in gold and energy stocks, and just three sectors closed in negative territory.

The S&P/TSX composite index is up 0.78 per cent month-to-date, and up 14.07 per cent year-to-date.

On today's TSX Breakouts report, there are 53 securities on the positive breakouts list (stocks with positive price momentum) compared to nine stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is a defensive stock from the positive breakouts list. The stock pays investors an attractive dividend yield of 4.6 per cent. In addition to the stellar 37 per cent increase year-to-date in the share price, analysts are forecasting further upside of up to 21 per cent with limited downside risk anticipated. The stock I am referring to is Pembina Pipeline Corp. (PPL-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Calgary-based Pembina is a midstream service provider serving the energy industry. The company owns and operates pipelines that transport products derived from natural gas and hydrocarbon liquids. In addition, Pembina owns and operates gas gathering and processing facilities. The shares are dual-listed, trading on the Toronto Exchange under the ticker, PPL, and on the New York stock exchange, with the ticker PBA.

After the market closed on Aug. 4, the company reported better-than-expected second quarter financial results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $291-million, surpassing the consensus estimate of $282-million. Adjusted cash flow from operating activities per share was 60 cents, surpassing the Street's forecast of 56 cents per share. The share price rallied 2 per cent the following trading day.

Management targets between approximately 15 per cent and 25 per cent compound annual growth in EBITDA through 2018. On the second quarter conference call, Scott Burrows, the chief financial officer, stated, "Our teams are doing a great job of advancing our over $5-billion of growth projects, all of which are expected to be in service by the end of next year. These projects are set to add between $600-million and $950-million of incremental EBITDA by 2018 compared to 2015."

The company will be reporting third-quarter financial results on Nov. 3.

Dividend policy

The company pays shareholders a monthly dividend of 16 cents per share, or $1.92 per share on a yearly basis. This translates to an annualized dividend yield of 4.6 per cent.

The company has increased its dividend each calendar year since 2012. Its most recent 4.9 per cent dividend hike was announced in March of this year. From 2006 through to 2015, the compound annual dividend growth rate is 5 per cent.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 14 times the 2017 consensus estimate, in-line with the three-year historical average.

Analysts' recommendations

The company is well covered by the Street. Since the start of this year, 17 firms have issued research reports, of which 12 are 'buy' recommendations and five are 'hold' recommendations.

Target prices range from a low of $41 to a high of $50, which implies limited downside but upside potential of up to 21 per cent. The average one-year target price is $44.07. Individual target prices in numerical order are as follows: $41, 42.50, three at $43, four at $44, $45, two at $46, two at $47, $48.50, and $50.

The Street is forecasting EBITDA of $1.19-billion in 2016, up from just under $1-billion in 2016, and forecast to increase to $1.48-billion in 2017.

The consensus EBITDA forecasts have been relatively stable. For instance, at the start of this year, the consensus EBITDA estimate was $1.19-billion in 2016 and $1.49-billion in 2017.

Insider yransaction activity

On July 6, Anne-Marie Ainsworth, whom sits on the Board of Directors, purchased 9,675 shares at a price of $39.85 per share. This information can be found on the website www.sedi.ca.

Chart watch

There is initial overhead resistance at $43, and after that around $45.

In terms of downside support, there is support at its 50-day moving average (at $39.72), and failing that at its 200-day moving average (at $36.55).

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.