Pembina Pipeline continues to enjoy our Above-Average Dividend Sustainability Rating. That reflects, in part, its unbroken record of dividend payments since converting from an income trust in October 2010.
The company’s expansion into the U.S. through its 2017 acquisition of Veresen Inc. should help it maintain that track record. The $9.7 billion purchase has been a good fit for Pembina and complements its many growth projects now underway. Those, plus the addition of Veresen, should also continue to boost the company’s cash flow and share price.
PEMBINA PIPELINE CORP. $49(Toronto symbol PPL; High-Growth Dividend Payer Portfolio; Utilities sector; Shares outstanding: 510.0 million; Market cap: $25.0 billion; Dividend yield: 4.9%; Dividend Sustainability Rating: Above Average; www.pembina.com)owns pipelines that carry almost all of B.C.’s oil and half of Alberta’s conventional oil. In addition, its network transports 30% of Western Canada’s natural gas liquids (NGLs). The company owns extensive facilities to extract, process and store NGLs; it also operates natural gas-processing plants.
Pembina last increased its monthly dividend by 5.3% with the June 2019 payment. Investors now receive $0.20 a share instead of $0.19. The new annual rate of $2.40 yields a high 4.9%.
The company pays out around 76% of its cash flow as dividends, so it has plenty of room to keep increasing that payment.
Between 2014 and 2016, lower selling prices for NGLs hurt revenue at Pembina’s midstream operations. As a result its overall revenue fell 31.7%, from $6.07 billion in 2014 to $4.15 billion in 2016.
In 2017, the company completed its acquisition of Veresen Inc. for $9.7 billion. The purchase broadened Pembina’s operations as well as its U.S. exposure. In addition, Veresen came with key assets, including 50% of the Alliance gas line; it spans 3,000 kilometres between Chicago and Fort St. John, B.C.
The new operations increased Pembina’s 2017 revenue by 30.1%, to $5.40 billion. Revenue jumped a further 36.1%, to $7.35 billion, in 2018. Cash flow also soared 177.2%, from $777 million in 2014 to $2.15 billion in 2018. With more shares outstanding, cash flow per share rose at 79.4%, from $2.38 to $4.27.
In the quarter ended March 31, 2019, Pembina’s revenue rose 7.1%, to $1.97 billion from $1.84 billion a year earlier. Cash flow rose 9.1%, to $578.0 million, or $1.14 a share, from $530.0 million, or $1.05.
The company recently formed a 50/50 joint venture with the Petrochemical Industries Company K.S.C. of Kuwait to build a plant near Edmonton to convert propane into plastic pellets. Manufacturers will use the pellets for car components, medical devices, food packaging and appliances. Pembina’s share of the costs is $2.5 billion. The plant should begin operating in 2023.
Pembina also plans to spend $1.6 billion in 2019 on projects and upgrades to its operations. However, it will slow the development of its proposed Jordan Cove liquefied gas facility and related pipelines in Oregon. That’s because federal regulators as well as those for the state are still examining the project. As a result, the company expects to complete Jordan Cove in 2025 instead of 2024. It also plans to sell between 40% and 60% of the project to offset the $7.5 investment in Jordan Cover.
Overall cash flow (after dividends) should cover about half of that amount. The company will borrow the rest, adding to its total debt of $7.6 billion (March 31, 2019). That’s a manageable 30% of its market cap.
The stock is also attractive at just 8.4 times Pembina’s likely 2019 cash flow of $5.80 a share.
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owns pipelines that carry almost all of B.C.’s oil and half of Alberta’s conventional oil. In addition, its network transports 30% of Western Canada’s natural gas liquids (NGLs). The company owns extensive facilities to extract, process and store NGLs; it also operates natural gas-processing plants.
