This oil company hammered Wall Street’s estimates ($0.38) last quarter. Its current annual dividend yield of 7.56%, paid monthly.
Pembina Pipeline Corporation (PBA, PPL.TO)
From Income Investor
Pembina owns and operates an integrated system of pipelines that transport various products derived from natural gas and hydrocarbon liquids produced primarily in western Canada. The company also owns and operates gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business.
Pembina’s revenue and profits have taken a hit this year, but unlike many companies in the energy sector, it has not cut its dividend. On the contrary, the company has repeatedly stressed its commitment to maintain the monthly payout at a lofty $0.21 a share ($2.52 a year).
Third-quarter results showed revenue of just under $1.6 billion, down from $1.7 billion in the same period of 2019. Earnings were $318 million ($0.51 per share, fully diluted), down from $370 million ($0.66 per share) the year before. Adjusted EBITDA was $796 million, up 8% from $736 million on the third quarter of 2019. New acquisitions acquired from Kinder Morgan were important contributors to the improvement.
The company expects adjusted EBITDA for the year to be within the original guidance range set in the fourth quarter of 2019, albeit near the lower end of that range. Based on the current outlook for the remainder of the year, the company has narrowed its guidance range and expects to generate adjusted EBITDA of $3.25-$3.30 billion in 2020.
The balance sheet appears to be in good shape, something that cannot be said for many energy companies. During the second quarter, Pembina’s credit ratings were affirmed at BBB (investment grade) by both Standard & Poor’s and DBRS Limited, with the outlook or trend maintained as stable.
As for the dividend, the company said last spring that its dividend is more than covered by fee-based cash flows, meaning the company is not reliant on the portion of its business with direct commodity price exposure to pay the current dividend.
In its third-quarter report, the company continues to express confidence. During the first nine months of the year, Pembina’s ratio of common share dividends to adjusted cash flow from operating activities was approximately 60%. Management said the company’s commitment to its dividend can be “evidenced by examining its history.”
The high yield suggests that investors are still skeptical that the company will be able to sustain the dividend through 2021 if the economic environment does not improve. But Pembina’s repeated strong insistence that the dividend is secure means events would have to take a disastrous turn for it to reverse course now.
The stock is a Buy for investors who can deal with risk.
Gordon Pape, Income Investor, buildingwealth.ca, 1-888-287-8229, November 26, 2020