Growth by acquisition can be risky, as newly purchased companies may develop unforeseen problems, especially in an unsettled economy. Today we look at how growth by acquisition is working for two pipeline companies we cover regularly in our advisory on conservative investing, Canadian Wealth Advisor.

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.

In the quarter ended September 30, 2013, Pembina’s revenue rose 34.9%, to $1.2 billion from $870.9 million a year earlier. The gains came from pipeline expansions and Provident Energy, which Pembina bought for $3.2 billion last year. Provident extracts, transports and stores NGLs.

Cash flow jumped 41.7%, to $188.7 million from $133.2 million. Cash flow per share gained 32.6%, to $0.61 from $0.46, on more shares outstanding.

Pembina is planning $1.5 billion of capital spending in 2014, up 56% from this year. It will allocate 60% to NGL-related projects. The remaining 40% will go toward oil-pipeline expansions.

The company raised its monthly dividend by 3.7% earlier this year, to $0.14 from $0.135. The shares now yield 4.9%.

Dividend stocks: Veresen maintains high dividend yield of greater than 7%

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. Enbridge owns the other 50%. Veresen also owns the Alberta Ethane Gathering System, and Veresen and Enbridge together hold 85.4% of the Aux Sable NGL plant.

In February 2012, Veresen paid Encana Corp. $920 million for the Hythe/Steeprock natural gas gathering and processing complex. Encana signed a long-term deal to buy most of this facility’s gas.

To diversify beyond pipelines and gas-processing, Veresen continues to expand into power generation. This includes hydroelectric facilities, wind farms, natural gas-fired plants and waste-heat facilities.

In the quarter ended September 30, 2013, Veresen’s cash flow per share rose 12.9%, to $0.35 from $0.31.

The company’s monthly dividend of $0.08 yields 7.2%.

In the latest issue of Canadian Wealth Advisor, we look at the differences between the two strategies Pembina and Veresen are using to try and lessen the risk of growth by acquisition. We also examine the earnings outlook for the two companies and whether they can maintain their high dividends. We conclude with our clear buy-hold-sell advice for both of these stocks.

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COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

Opposition to pipelines from environmental and local interest groups has been prominent in the headlines over the past few years. Does this discourage you at all from investing in pipeline stocks? If you do invest in these stocks, what is their chief attraction: the dividend yield, or growth prospects from increased oil and gas production in North America?