Updated June 16, 2021 by Bob Ciura

Midstream energy companies are widely known as sources of high dividend yields. Due to the continuing oil demand, midstream operators benefit from favorable economic conditions. In addition, midstream companies are less exposed to commodity price risk than their upstream competitors in the exploration and production industries.

Pembina Pipeline Corporation (PBA) is a midstream energy stock that rewards its shareholders with high dividend income. This Canadian company currently has a dividend yield of 6%, more than four times the average return on the S&P 500 Index.

The Pembina pipeline is unique among midstream oil companies in that it pays its dividend monthly.

Despite their appeal, monthly dividend stocks are pretty rare. You can view our full list of all 53 monthly dividend stocks (with key metrics like dividend yields and payout ratios) by clicking the link below:

The high dividend yield and monthly dividend payments of the Pembina Pipeline make it a fascinating investment from a profit point of view.

Investing is more than choosing a high rate of return, however, and this article analyzes the Pembina Pipeline’s investment prospects in detail.

Business overview

Pembina Pipeline Corporation is a Canadian all-energy infrastructure company based in Calgary, Alberta, Canada.

With a market capitalization of over $ 18 billion, Pembina is a large-cap stock.

in the Countand May, Pembina reported (5/6th/21) Financial results for the first Quarter of 2021. Revenue increased 22% year over year, mainly due to the 41 percent growth in product revenue. But DThe positive effect from increased Quantities and higher prices was offset by losses from hedging activities. As a result, his EBITDA and his MeritsPershare were flat compared to the same quarter of the previous year.

Pembina has an integrated system of pipelines that connect various liquid hydrocarbons and natural gas products, primarily in western Canada. The company also has meetings and processing plants. Pembina operates three Segments: Pipelines, facilities, and marketing and new ventures.

While Pembina is still committed to crude oil demand, it is better insulated than companies that sell oil directly. This isolation has helped him weather many storms before and we believe he will get along on the other side of the COVID-19 crisis as well.

According to the company, Pembina generated 94% of its Adjusted EBITDA in 2020 from fee-based activities. This means that the vast majority of the company’s cash flow comes from services that are paid for based on the quantities of product being transported and stored.

The company also works according to the “take-or-pay” model, which ensures a certain cash flow even if the underlying raw material price fluctuates. This has helped Pembina generate positive cash flow and maintain its dividend over the past several years through several difficult times for the oil and gas industry.

Growth prospects

We expect Pembina to grow its earnings per share by 4% per year over the next five years. This growth is supported by new projects and acquisitions.

June 1stst In 2021, Pembina agreed to acquire Inter Pipeline for $ 8.3 billionStock business. Pembina finds the complementary nature of Inter Pipeline’s assets very attractive.

Source: Investor Presentation

The acquisition will bring Pembina immediate growth and create a company with a hydrocarbon transport capacity of over 6 million barrels per day, which is twice the company’s current levels.

The deal is also financially attractive. Cost savings should mean the deal is very profitable for Pembina. The two companies have highly interconnected and complementary assets and therefore expect synergies of 150 million € 200 million per year. The merger creates one of Canada’s largest energy infrastructure companies.

Pembina’s current business is well run and highly profitable, but it also invests in the future. Overall, we see Pembina’s growth prospects as promising.

Dividend analysis

Pembina currently pays a monthly dividend of $ 0.21 per share or $ 2.52 per share annualized. In US dollars, this equates to an annualized payout of approximately $ 2.06 per share at current exchange rates. This means that Pembina stock is currently yielding 6.1%.

Note: As a Canadian stock, US investors who invest in the company outside of a retirement account will be charged a 15% dividend tax. Check out our guide to Canadian taxes for US investors here.

The company has a solid track record of dividends and has held and increased the payout steady since 1998.

The other attractive aspect of the Inter Pipeline acquisition is that Pembina expects to increase its monthly dividend by $ 0.01 per share, an increase of 4.8% once the acquisition is completed.

It is important that the takeover of Pembina’s financial position does not suffer from excessive debt. The company has a strict policy of financial guard rails that include strong creditworthiness and manageable debt.

Source: Investor Presentation

We also see a long road ahead for dividend growth as the company should continue to grow its earnings and distributable cash flow. Upon completion of the Inter Pipeline acquisition, Pembina expects the combined company to pay out dividends in the range of 72% to 77% based on chargeable distributable cash flow.

Not only has this made the payout a lot safer, but it also increased the runway that the payout needs to move up over time. Pembina’s dividend is therefore valued highly not only in terms of safety, but also in terms of the pipeline operators’ growth potential.

This is an extremely attractive offer for dividend investors, and considering that the payout is also monthly instead of quarterly, Pembina is in a class of its own.

Final thoughts

Pembina is a dividend stock with a long track record of constant dividends. It also has monthly dividend payments, which is one of the main reasons investors might have an initial interest in the stock.

On closer inspection, given its robust project pipeline on the horizon, even with investments deferred due to COVID-19, Pembina appears well positioned to grow in the medium to long term.

Pembina’s dividend yield of 6% is very attractive to income investors, while the expected growth from the Inter Pipeline acquisition offers a high likelihood of further dividend growth. We see the safe and growing dividend as the main reason to own Pembina today and believe it is an attractive monthly dividend stock for income investors.

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