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Topic: Energy Stocks

Pembina Pipeline and Veresen boast high yields and promising projects

Pembina Pipelines and Veresen

Today we report on two pipeline companies that are forging ahead with new projects in spite of the slowdown among energy stocks. Pembina Pipeline is spending 36% more on new projects in 2015 than it did a year ago, while Veresen is planning to add an LNG plant in Oregon to its assets. We like the longer-term outlook for both of these high-yielding stocks.

For our most recent reports on two other Canadian pipeline stocks that also continue to expand, read: New projects keep this pipeline among Canada’s best dividend stocks and TransCanada’s dividend income flows on without Keystone XL.

PEMBINA PIPELINE (Toronto symbol PPL; www.pembina.com) owns pipelines that carry half of Alberta’s conventional oil, 30% of Western Canada’s natural gas liquids (NGLs) and almost all of B.C.’s conventional oil.

Pembina also owns extensive facilities to extract, process and store NGLs.

In the three months ended March 31, 2015, the company’s cash flow per share fell 24.1%, to $0.63 from $0.83 a year earlier. That’s mainly because lower oil and gas prices cut profit margins and volumes at its NGL extraction business.

Pembina is spending $1.94 billion on capital projects this year, up 36% from 2014. It will mainly invest these funds in projects already in progress, almost all of which already have long-term contracts with customers. That cuts the company’s risk.

The stock trades at 17.3 times its forecast 2015 cash flow of $2.14 a share. The company raised its monthly dividend by 5.2% with the June 2015 payment, to $0.1525 from $0.145; it yields 4.7%.

Recommendation in Canadian Wealth Advisor: BUY 


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Energy stocks: Yielding a high 7.7%, Veresen’s dividend appears safe

VERESEN (Toronto symbol VSN; www.vereseninc.com) owns pipelines, power plants and gas-processing facilities across North America.

A major holding is 50% of the Alliance gas line, which runs 3,000 kilometres between Chicago and Fort St. John, B.C. Veresen also owns the Alberta Ethane Gathering System, 42.7% of the Aux Sable NGL plant and the Hythe/Steeprock natural gas gathering and processing complex in the Cutbank Ridge region of Alberta and B.C.

In the three months ended June 30, 2015, Veresen’s cash flow per share fell 24.1%, to $0.22 from $0.29 a year earlier.

In late 2014, Veresen paid $1.43 billion for 50% of the Ruby pipeline system, which runs 1,100 kilometres from Wyoming to Oregon. Partner Kinder Morgan operates the line, which generates steady cash flow.

Veresen is also moving ahead with plans to build the $6.8-billion Jordan Cove liquefied natural gas plant in Oregon. The Ruby pipeline terminates at the state’s Malin hub, so it will give Veresen a nearby natural gas source for Jordan Cove, if needed.

The company’s longer-term outlook is sound. The stock trades at 13.7 times Veresen’s forecast 2015 cash flow of $1.04 a share. It yields a high 7.7%, and the dividend appears safe.

Recommendation in Canadian Wealth Advisor: BUY  

 

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