Pembina is set to complete a $5.2 billion expansion program this year. Those new operations will immediately add to cash flow and support the company’s plans for future dividend increases. In fact, Pembina has already begun to benefit from a new wave of growth. That includes a 20year deal, worth billions, to provide Chevron with natural-gas gathering systems for its operations in west-central Alberta.
PEMBINA PIPELINE CORP. $44 (Toronto symbol PPL; HighGrowth Dividend Payer Portfolio; Utilities sector; Shares outstanding: 399.9 million; Market cap: $17.6 billion; Dividend yield: 4.4%; Dividend Sustainability Rating: Above Average; www.pembina.com) built its first pipeline in 1954 to pump crude oil to Edmonton from the Pembina field outside Drayton Valley, Alberta.
The company now has over 10,000 kilometres of pipelines, in Alberta, B.C., Saskatchewan and North Dakota. They transport half of Alberta’s conventional crude oil production, about 30% of the natural gas liquids (NGLs) produced in Western Canada, and virtually all of the conventional oil produced in B.C.
In addition, Pembina owns extensive facilities to extract, process and store NGLs; it also operates natural-gas processing plants.
In 2016, the company’s midstream operations (which store and processes oil and NGLs) supplied 73% of its revenue and 37% of its earnings; followed by conventional oil pipelines (16%, 37%); gas services (which gathers and processes natural gas; 6%, 15%); and oil sands and heavy oil pipelines (5%, 11%).
Thanks to acquisitions and expansions of its own pipeline systems, Pembina’s revenue jumped 77.1%, from $3.4 billion in 2012 to $6.1 billion in 2014. Revenue then fell to $4.6 billion in 2015 and to $4.3 billion in 2016. That’s mainly because lower selling prices for NGLs hurt revenue at Pembina’s midstream operations.
However, Pembina’s cash flow soared 99.6%, from $494 million in 2012 to $986 million in 2016. Due to more shares outstanding, cash flow per share rose at a slower rate of 33.0%, from $1.91 to $2.54.
Starting with the April 2017 payment, the company raises its monthly dividend by 6.3%, to $0.17 a share from $0.16. The new annual rate of $2.04 yields a high 4.6%. The company has raised its dividend annually for the last five years.
In 2016, dividends accounted for 74.7% of Pembina’s cash flow.
The company recently suspended its Dividend Reinvestment Plan (DRIP). The March 2017 payment was the last dividend payment eligible under the plan.
Shareholders enrolled in the DRIP will now automatically receive dividend payments in the form of cash. If Pembina reinstates the DRIP at some future date, it will automatically reinstate enrolled shareholders.
In 2017, the company plans to spend $1.9 billion to complete about $4 billion in growth projects. In 2016, it completed $1.2 billion in similar works. They include the expansion of Pembina’s Horizon pipeline as well as new gas-processing facilities to prepare gas from its customers’ wells for its pipelines.
Most of this year’s projects will come into service, and begin to add to the company’s cash flow, by the second half of 2017.
Altogether, the new operations should increase Pembina’s cash flow to $2.80 a share for 2017. That’s up 10.2% from $2.54 in 2016. The stock trades at 15.7 times the 2017 estimate. That’s a reasonable multiple in light of its high-quality assets.
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