Pembina Pipeline is a leading energy infrastructure company in North America. The company has a presence in crude oil, natural gas, and natural gas liquids industries across multiple basins and markets throughout Canada and the U.S.
Pembina has three divisions, pipelines (~65% of 2020 adjusted EBITDA), facilities (30%), and marketing and new ventures (5%). The company owns a large network of pipelines that transport crude oil, natural gas, and natural gas liquids produced primarily in western Canada. It also owns gathering and processing facilities, and oil and natural gas liquids infrastructure, and logistics business.
Pembina owns and operates an 18,000 km long pipeline and a total capacity of 3 mmbpd. The company has 19 gas processing facilities and 6 bcf/d of net gas processing capacity. The strategic location of Pembina’s assets in rich resource areas provides ample opportunities for future growth.
Pembina marked another major milestone celebrating over 65 years as a company. The company has grown from a single pipeline to an organization with a total enterprise value of ~$34 billion.
- Opportunity Score: 61
- Ticker: TSE:PPL
- Sector: Energy
- Industry: Oil & Gas Midstream
- Market Cap: 20.16B
- P/E: 0.00
- Dividend Yield: 6.87%
- Payout Ratio (Earnings): 100.00%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 9/10
Revenue Growth & Market Exposure
Pembina Pipeline has been serving the energy industry in North America for over 65 years and offers a full spectrum of midstream and marketing services. Its integrated assets, commercial operations, and the hydrocarbon value chain are its strong competitive advantages.
The company is known for providing safe, value-added, and cost-effective transportation solutions. Its Pipelines division consists of conventional, transmission, and oil sands and heavy oil pipeline assets, while its Facilities division includes natural gas processing and NGL fractionation facilities and related infrastructure.
A huge and efficient network of pipelines is the key to success for a midstream energy company. Pembina’s leading position in the Canadian Oil Sands region is also an added advantage. The contracts for conventional pipelines are on a fee-for-service basis and provide better cash flow visibility.
Pembina typically enters into long-term contracts that are less susceptible to volatility and are also extendible. The company is diversified across 200 strong counterparties with ~75% having investment grade ratings.
Pembina has a fully-integrated value chain for natural gas, NGL, crude oil, and condensate. Its strategic locations via the North American west coast provide wide access to global markets. The company continues to benefit from the ongoing growth in its business, both organically and through acquisitions.
The company’s strategic acquisition of Kinder Morgan Canada and the U.S. portion of the Cochin Pipeline is estimated to provide enhanced integration with Pembina’s existing franchise and extend its value chain. They are also projected to increase adjusted EBITDA by 15%-30% over a five-year period.
Pembina is best positioned to meet customer demand for integrated services and support the growing use of natural gas and natural gas liquids. Its Prince Rupert Terminal is also expected to support the development of an export terminal business.
The company witnessed improving activities in its conventional pipelines business with a recovery of ~100,000 barrels per day. Though Pembina suspended the execution of its petrochemical project indefinitely, it re-activated the Phase VII Peace Pipeline Expansion and Empress Co-generation Facility growth projects.
The company continued to witness weaker global energy demand as a result of the pandemic, but its Q3 earnings improved due to contribution from the assets in the Kinder acquisition.
Pembina has a proven history of maintaining and growing its dividend since 1998. It pays monthly dividends to its shareholders and last raised them by 6.8% annually marking the 10th consecutive annual increase.
This Canadian Dividend Aristocrat has paid $9.4 billion in dividends since its inception and has grown them at a 6.5% CAGR over the last five years and at more than 4% CAGR in the last decade. Pembina Pipeline’s current dividend yield stands at more than 7%. The company is estimating to generate 90%-95% of its EBITDA from fee-based contracts and is targeting a payout ratio of 71%-75% of fee-based distributable cash flow in FY2021. Its EBITDA per share has registered a growth of ~13% CAGR in the last decade.
Pembina’s integrated business models supported by long-term contracts and a strong financial position have generated consistent and growing earnings through energy market cycles. The company’s dividends are fully underpinned by fee-based adjusted EBITDA. In 2020, fee-based cash flow comprised almost 95% of adjusted EBITDA with ~ 72% being from take-or-pay contracts.
Its dividend continues to be fully funded without any dependency on its commodity exposed business. The company has a strong pipeline worth $1.9 billion of fee-based projects including the expansion of the Peace pipeline system and Prince Rupert Terminal. It also currently has more than $10 billion of significant backlog of opportunities including Cochin expansion, Edmonton Terminals expansion, NEBC infrastructure solutions, and Jordan Cove LNG projects.
Pembina expects to generate an adjusted EBITDA of ~$3.2 billion to $3.4 billion and has a capital investment program of $785 million for FY2021. Its capital investment program is fully funded by cash flow from operating activities net of dividends. The company deferred some expansion projects and reduced capital spending by ~40%-50% in 2020, thus strengthening its liquidity.
Pembina realized $150 million of cost savings during the year. A strong pipeline of projects, access to premium markets, and a strong financial position should help the company maintain its dividend growth streak in the future.
Enbridge, TC Energy, Inter Pipeline Ltd, and Keyera Corp are Pembina Pipeline’s leading competition. Enbridge is Canada’s largest natural gas distribution provider while Inter Pipeline is an integrated energy infrastructure company in Canada.
Keyera’s predominantly fee-for-service based and integrated business poses strong competition for Pembina Pipeline, while TransCanada Pipeline is a North American infrastructure company, supplying more than 25% of natural gas consumed daily across North America.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield Raw||Yield||PayoutRatio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph|
|TSE:ENB||ENB||Enbridge||Energy||Oil & Gas Midstream||0.68||46.23||74.26||31.32||31.32||1.48||0.0722||7.22||2.2568||4||3.34||0.1889||7||8||Tollbooth - Unregulated||YES||YES||YES||NO||Canada||1|
|TSE:TRP||TRP||TC Energy||Energy||Oil & Gas Midstream||0.71||58.71||45.92||12.38||12.38||4.74||0.0593||5.93||0.7342||4||3.48||0.1296||6||9||Tollbooth - Unregulated||NO||YES||YES||NO||Canada||1|
|TSE:PPL||PPL||Pembina Pipeline||Energy||Oil & Gas Midstream||0.61||36.66||20.16||0.00||0.00||-0.87||0.0687||6.87||1.0000||12||2.52||0.1110||7||9||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:IPL||IPL||Inter Pipeline Ltd||Energy||Oil & Gas Midstream||0.43||18.09||7.76||21.57||21.57||0.84||0.0265||2.65||0.5714||12||0.48||0.0554||2||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
|TSE:KEY||KEY||Keyera Corp||Energy||Oil & Gas Midstream||0.50||26.46||5.85||94.03||94.03||0.28||0.0726||7.26||6.8571||12||1.92||0.1356||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:GEI||GEI||Gibson Energy Inc.||Energy||Oil & Gas Midstream||0.44||22.19||3.23||27.21||27.21||0.82||0.0631||6.31||1.7073||4||1.40||0.0631||2||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
As a leading North American energy infrastructure company, Pembina Pipeline is well-positioned for future growth with strategically located assets and increasing demand for services.
Pembina is a leader in delivering integrated infrastructure solutions connecting global markets. The company has a proven track record of resilience through multiple global headwinds and a growing backlog of uncommitted growth projects.
Its highly contracted business providing low risk and stable cash flow should support future dividend growth. However, you need to get the best pipeline today and I am not sure PPL is the best.