With a Near 7% Yield, Is This TSX Dividend Stock a Good Buy?

Pembina Pipeline (TSX:PPL)(NYSE:PBA) has a dividend yield of 6.87%. With the stock well above its 52-week low, is Pembina a good buy?

| More on:
thinking

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

For 65 years, Pembina Pipeline (TSX:PPL)(NYSE:PBA) has been serving North America’s energy industry.

The Calgary-based company owns an integrated system of pipelines that transport crude oil, natural gas, and natural gas liquids throughout North America. The company’s products come primarily from Western Canada.

Currently, Pembina has a whopping dividend yield of 6.87%, with a stock price of $36.69 as of this writing.

With the stock well above its 52-week low of $25.18, is Pembina a good buy?

Acquisition pays off

In 2019, Pembina acquired Kinder Morgan Canada and the Cochin Pipeline for $4.35 billion. It appears this acquisition is beginning to pay off. Pembina’s recently announced fourth quarter and annual adjusted EBITDA were positively impacted by contributions from the assets acquired in the Kinder Morgan acquisition.

Pembina reported record fourth-quarter adjusted EBITDA of $866 million, up 10% from the same period last year. The company also reported a record full-year adjusted EBITDA of $3,281 million, representing a 7% increase over the prior year.

The company recorded a loss in the fourth quarter of $1,216 million and a loss for the full year of $316 million compared to earnings of $150 million and $1,507 million, respectively, in the same periods in the prior year.

Maintains dividend

Braced for the challenges stemming from the COVID-19 outbreak, Pembina went to great lengths to protect its balance sheet and credit rating during the pandemic. The company has a stable contracted stream of cash flows, which covers all of its distributions.

Cash flow from operating activities totaled $766 million for the fourth quarter and $2,252 million for the full year.

The company increased its monthly dividend in early 2020 and maintained that dividend even after the onset of the pandemic.

In fact, Pembina has never reduced its dividend, even during difficult economic circumstances, such as the 2009 financial crisis and the 2015 commodity price downturn.

Bright outlook

Regarding the effects of the COVID-19 pandemic on operations, the company noted, “In 2020, the COVID-19 pandemic drove commodity prices lower and prompted unprecedented defensive actions by our producer customers. However, given the ingenuity of our customers and the exceptional geology they sit upon; the highly diversified nature of our company across commodities, geographies, and customers; the highly contracted nature of our assets; our frac spread hedging program; as well as substantial cost savings achieved throughout the business, Pembina delivered adjusted EBITDA of approximately $3.3 billion, which is within our pre-pandemic guidance range and at 97 percent of the midpoint of that range.”

Fortunately, as the world begins to emerge from the effects of the global pandemic, 2021 has seen an increase in commodity prices. This has prompted the company to be cautiously optimistic on its 2021 financial outlook.

The bottom line

Given the fact that commodity prices have recently been rising, Pembina has reason to be optimistic about the future. Although the remainder of 2021 could pose some challenges as the effect of the pandemic lingers, long-term investors should consider Pembina.

With a stable balance sheet, the company looks poised to emerge stronger post-pandemic. And the fact that Pembina has never decreased its payout should quell any fears of would-be investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cindy Dye has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »