The best dividend stocks are companies that have the ability to raise these payouts each year, increasing your effective yield significantly. In addition to steady dividend payouts, investors should also have the opportunity to benefit from long-term capital gains.
One such high-yield TSX company is Keyera (TSX:KEY), which currently pays shareholders an annual dividend of $2 per share, translating to a dividend yield of 6.3%. Let’s see if you should buy Keyera stock for its attractive dividend yield.
Is Keyera stock a good buy right now?
Keyera is among the largest independent midstream businesses in Canada. Valued at a market cap of $7 billion, Keyera plays a crucial role in processing, transporting, and marketing clean-burning natural gas.
Keyera is a midstream company, which suggests it doesn’t drill or explore for oil and gas. Instead, it gathers, processes, transports, and stores energy. It operates in an industry with high barriers to entry, providing it access to the highest-value markets.
Keyera’s integrated value chain enables it to maximize profit margins, allowing the company to increase distributable cash flow by 7% and dividends by 6% each year since 2008.
Its dividend payout is sustainable, as Keyera aims to maintain a payout ratio of between 50% and 70%. Its dividend growth is supported by expansion in cash flows, which are stable and tied to fee-based long-term contracts.
Keyera ended the second quarter (Q2) with a net debt to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of 2.6 times, which is quite reasonable. It also ended the quarter with $1.11 billion in liquidity, providing the company with enough flexibility to invest in capital projects and drive future cash flows higher.
Keyera completes KAPS pipeline project
Keyera recently disclosed it completed the KAPS pipeline, which is a natural gas liquids and condensate pipeline located in Alberta. The pipeline spans 575 kilometres and is operated by Keyera and Stonepeak, an alternative investment company that specializes in infrastructure and real assets.
According to Keyera, the KAPS pipeline will transport 350,000 barrels per day of NGLs and condensate from the Montney and Duvernay basins to the liquid processing and storage hub in Alberta.
Keyera believes the pipeline provides a competitive transportation alternative that allows producers to increase natural gas production. It is a solution designed to integrate services, generate higher volumes, and expand commercial opportunities and will be a key driver of earnings growth in the near term.
What’s next for Keyera stock?
Keyera explains it has strategically positioned assets to benefit from volume growth in key areas located in the Western Canada basin. In the last years, it has invested heavily to create a gathering & processing footprint, which continues to deliver volume and cash flow growth.
Due to strong growth in gathering and processing volumes, the liquids infrastructure business delivered realized margin growth of more than 20% year over year.
Keyera increased its quarterly dividend by 4.2% and is forecast to end 2023 with adjusted earnings of $2.18 per share, up from $1.48 per share in 2022.
Priced at 14 times forward earnings, Keyera stock trades at a discount of 15% to consensus price target estimates. After adjusting for dividends, total returns will be closer to 22%.
