Topic: Value Stocks

Ambitious future projects should bolster this 5.2% yield

This growing company owns extensive pipelines in Western Canada as well as extensive NGL facilities and natural gas processing plants. It recently bought a major rival and has major growth plans, including $1.6 billion in projects for 2019 alone.

In the most recent quarter, and since a key acquisition, revenue has jumped 95.7% and cash flow has jumped 66.6%

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PEMBINA PIPELINE CORP. (Toronto symbol PPL; 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.

The company recently announced plans to spend $1.6 billion on new projects and upgrades to its existing operations in 2019.

About 53% of that spending will go toward new pipelines. That includes completing two expansions of its Peace Pipeline System.

A further 25% of that 2019 spending will go to Pembina’s facilities division. It is now building gas-processing plants, which should begin operating in the next two years.

The remaining 22% will go toward other projects such as the proposed Jordan Cove liquefied gas facility and related pipelines in Oregon. That project could begin operating in 2024.

Thanks partly to Pembina’s new projects, it expects gross earnings (before interest, taxes and depreciation charges) to range between $2.8 billion and $3.0 billion for 2019. The midpoint of that range is 3.6% higher than the projected 2018 gross earnings of $2.8 billion.

Value Stocks: Bought a rival and revenue and cash flow jumped

These projects hold promise when it appears past ventures have worked well.

In October 2017, the company completed its acquisition of rival pipeline operator Veresen Inc. for $9.7 billion.

In the quarter ended September 30, 2018, Pembina’s revenue jumped 95.7%, to $2.05 billion from $1.05 billion a year earlier. Cash flow rose 66.6%, to $523.0 million from $314.0 million. Due to shares Pembina issued to purchase Veresen, cash flow per share rose 32.1%, to $1.03 from $0.78.

Meanwhile, the stock trades at just 10.3 times Pembina’s forecast 2018 cash flow of $4.26 a share.

Pembina increased its monthly dividend by 5.6% with the June 2018 payment. Investors now receive $0.19 a share instead of $0.18. The annual rate of $2.28 yields a high 5.2%.

The company’s dividend has grown an average of 6.3% annually over the last 5 years.

Recommendation in Dividend Advisor: Pembina Pipeline is a buy.


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