Pembina has now completed its acquisition of Veresen Inc. for $9.7 billion. The purchase is a great fit for the company: Veresen’s assets, including its 50% stake in the Alliance natural-gas pipeline, will broaden Pembina’s operations and its U.S. exposure. Veresen should also boost Pembina’s cash flow and dividends—and, so, its share price.
PEMBINA PIPELINE $43.17 (Toronto symbol PPL; Shares outstanding: 403.0 million; Market cap: $17.4 billion; TSINetwork Rating: Average; Dividend yield: 4.0%; www.pembina.com) owns pipelines that carry almost all of B.C.’s oil and half of Alberta’s conventional oil. Its network also carries 30% of Western Canada’s natural gas liquids (NGLs). Pembina owns extensive facilities to extract, process and store NGLs; it also operates natural-gas processing plants.
The Veresen purchase comes with key assets: 50% of the Alliance gas line, which spans the 3,000 kilometres between Chicago and Fort St. John, B.C.; and 50% of the Ruby pipeline, which runs 1,100 kilometres from Wyoming to Oregon. Veresen also owns the Alberta Ethane Gathering System and 42.7% of the Aux Sable liquids plant.
Altogether, the new operations, plus Pembina’s ongoing growth projects, should increase the company’s cash flow to $3.63 a share for 2018. That represents a 23.1% jump from its forecast 2017 cash flow of $2.95. Pembina currently trades at just 11.9 times that 2018 estimate.
As promised, now that the Veresen purchase is completed, Pembina will raise its monthly dividend by 5.9%. Starting in November, investors will receive $0.18 per share, up from $0.17. The stock yields a high 4.0%.
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