Better Buy: Pembina Pipeline or Keyera Stock?

Pembina Pipeline and Keyera have rewarded their shareholders with consistent dividend growth and high yields.

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Although inflation shows signs of cooling down, it is still higher than the Federal Reserve’s guidance of 2%. So, I believe the central bank won’t be in a hurry to lower its interest rates. A prolonged high-interest rate environment could impact global growth, thus hurting equity markets.

So, given the uncertain outlook, investing in solid dividend stocks is prudent, as you can earn a stable passive income irrespective of the broader market movement. Let’s assess which, Pembina Pipeline (TSX:PPL) and Keyera (TSX:KEY), would be a better buy with this uncertain outlook.

Pembina Pipeline

Pembina Pipeline owns a pipeline network that predominantly transports oil and natural gas products in Western Canada. It operates a highly diversified and contracted business, with commodity price fluctuations impacting less than 20% of its financials. Supported by these stable cash flows, the company has increased its dividends at a CAGR (compounded annual growth rate) of 5% over the last 10 years, with its yield for the next 12 months at 6.14% as of the May 15th closing price.

Meanwhile, Pembina Pipeline reported its first-quarter performance earlier this month, with its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) declining by 6% from its previous year’s quarter. Lower price realization and volume decline amid the Northern Pipeline system outage dragged the company’s financials down. Besides, its adjusted cash flow from operating activities declined by 9% to $634 million due to softer operating performance, lower volumes from the Ruby pipeline, and increased share-based compensation.

Notably, the company’s management expects its 2023 adjusted EBITDA to come in between $3.5–$3.8 billion, with the midpoint of the guidance representing a decline of around 2.7% from its previous year. The lower contribution from its marketing business and the negative impact of its Northern Pipeline system outage could lower its adjusted EBITDA. However, the management is hopeful of 4% growth in its fee-based business, thus making its future payouts safer.


Keyera is a Canadian energy infrastructure company involved in regulated natural gas gathering, processing, transportation, storage, and marketing. With fee-for-service contacts generating 66% of its cash flows, the company’s financials have substantial downside protection and deliver risk-adjusted returns. These stable financials have allowed Keyera to raise its dividends at an annualized rate of 6% since 2008, while its forward yield stands at 5.89%.

Meanwhile, Keyera reported solid first-quarter earnings last week, with its adjusted EBITDA and distributable cash flows growing by 13.6% and 27.5%, respectively. Record performance from its liquid infrastructure and gathering and processing segments drove its financials.

Meanwhile, I expect the uptrend to continue as Keyera has completed the construction of its KAPS (Key Access Pipeline System) facility. Besides, it has several projects in various development stages, and the company’s management expects to put these projects into service over the next three years. Amid these growth initiatives, the management hopes to grow its EBITDA at an annualized rate of 6-7% through 2025. So, the company’s growth prospects look healthy.

Investor takeaway

Although both companies offer a solid track record of dividend growth and impressive yields, I favour Keyera due to its improving financials, more visibility into its future earnings, and cheaper valuation. Keyera currently trades at a forward price-to-sales multiple of 1, while Pembina Pipeline’s forward price-to-sales multiple stands at 2.7.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Keyera and Pembina Pipeline. The Motley Fool has a disclosure policy.

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