1 Dividend Stock Down 30% to Buy Right Now

Keyera is an energy infrastructure company that pays shareholders a forward yield of almost 6%. Is KEY stock a good buy right now?

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Investing in undervalued dividend stocks can help you earn a steady stream of dividend income and benefit from long-term capital gains. Its essential to identify quality dividend stocks that trade at a discount to their intrinsic value while offering you a tasty dividend yield.

One TSX dividend stock down 30% from all-time highs is Keyera Energy (TSX:KEY), which offers you a forward yield of 5.8%. Let’s see why I’m bullish on Keyera stock right now.

An overview of Keyera stock

Valued at $8 billion by market cap, Keyera is an energy infrastructure company that operates a portfolio of interconnected assets. Keyera’s fee-for-service business consists of natural gas gathering and processing, natural gas liquids processing, transportation, storage and marketing, iso-octane production and sales, and a condensate system.

Natural gas is a cleaner energy source compared to coal and accounts for more than 20% of the global energy supply. With abundant natural gas resources in Canada and the U.S., Keyera is well-positioned to meet the growing demand for the commodity.

KAPS pipeline is a key earnings driver

In late 2023, Keyera completed the KAPS pipeline, Alberta’s newest natural gas liquids (NGLs) and condensate pipeline spanning 575 kilometres. KAPS is a joint venture between Keyera and Stonepeak, an alternative investment firm that specializes in real assets and infrastructure.

The KAPS pipeline will transport 350,000 barrels of NGLs and condensate every day from the liquids-rick Montney and Duvernay basins to a liquids processing and storage hub in Alberta.

The KAPS pipeline will provide a competitive transportation alternative that allows producers to grow natural gas production while advancing Alberta’s energy industry. Keyera emphasized that the pipeline will integrate services, generate additional volumes, and expand commercial opportunities.

In the fourth quarter (Q4) of 2023, Keyera added 30,000 barrels per day of new long-term KAPS commitments with an average contract term of 12 years. Around 50% of these volumes will begin contributing in the second half of 2024 and ramp up through 2029.

How did Keyera perform in Q4 of 2023?

In Q4 of 2023, Keyera reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $339 million, up from $212 million in the year-ago period. Its EBITDA also rose from $1.03 billion in 2022 to $1.21 billion in 2023.

The energy operator reported distributable cash flow (DCF) of $234 million, or $1.02 per share. In 2023, its DCF widened to $855 million or $3.73 per share, up from $654 million, or $2.95 per share, in the year-ago period.

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Keyera currently pays shareholders an annual dividend of $2 per share, indicating a payout ratio of 54%, which is sustainable. A low payout ratio provides Keyera with enough room to repay balance sheet debt, target accretive acquisitions, and increase its dividend payout. In the last nine years, Keyera has raised dividends by more than 50%.

Keyera expects adjusted EBITDA to expand at a compound annual growth rate of between 6% and 7% through 2025. It aims to invest between $80 million and $100 million in growth capital expenditures in 2024, which should drive future cash flows higher.

Priced at 17.8 times forward earnings, Keyera stock is cheap and trades at an 8% discount to consensus price target estimates.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Keyera. The Motley Fool has a disclosure policy.

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