Valued at $10 billion by market cap, Keyera Energy (TSX:KEY) is a Canada-based energy infrastructure company. Its business segments include:
- Gathering and Processing – It owns and operates gas-gathering pipelines and processing plants that collect and process natural gas.
- Liquid Infrastructure – It provides gathering, processing, fractionation, storage, transportation, liquids blending, and terminal services for natural gas liquids.
- Marketing – This segment markets propane and butane and is also associated with liquids blending activities.
Keyera Energy went public in early 2011 and has since returned close to 150% to shareholders. However, after adjusting for dividend reinvestments, cumulative returns are closer to 400%. In this period, the TSX index has returned 188% to shareholders.
Keyera pays shareholders an annual dividend of $2.08 per share, translating to a forward yield of 4.7%. Let’s see if you should invest in Keyera Energy for its tasty dividend yield and the TSX stock can continue to deliver outsized gains in 2024 and beyond.
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A strong performance in Q2 2024
Keyera Energy’s gathering and processing segment delivered a $102 million realized margin due to record throughput in the North region. Its Liquids Infrastructure business delivered its second-highest quarter ever, with a realized margin of $133 million. The metric for the marketing segment was even higher, at $136 million. In fact, Keyera expects its marketing business to end 2024 with a realized margin of between $450 million and $480 million.
In its earnings call, Keyera’s President and CEO, Dean Setoguchi explained, “Our Marketing segment has a distinct competitive advantage. Strong cash flow from this physical business has enabled us to consistently deliver above average after-tax corporate returns. This cash flow is then reinvested into long-life infrastructure projects, in turn driving growth in high-quality fee-for-service cash flow.”
Keyera emphasized that its performance in Q2 was driven by the ramp-up of its KAPS pipeline and growing demand for its fractionation storage and condensate business.
Keyera completed the construction of the KAPS pipeline last October. It is Alberta’s newest natural gas liquids and condensate pipeline, spanning 575 kilometres. Keyera owns 50% of the pipeline, and Stonepeak, an alternative investing firm specializing in infrastructure and real assets, owns the rest.
Keyera expects the ramp-up of the KAPS pipeline to generate strong free cash flow for the company in 2024.
Is Keyera a good dividend stock to own?
Keyera reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $326 million in Q2, up from $293 million last year. Its distributable cash flow stood at $202 million or $0.88 per share. Comparatively, Keyera pays shareholders a quarterly dividend of $0.52 per share, which indicates a payout ratio of 59%. Keyera’s sustainable payout ratio has helped it raise annual dividends to $2.08 per share in 2024, up from $1.29 per share in 2014.
Since 2008, Keyera has grown its distributable cash flow per share at a compound annual growth rate of 8%, while dividend growth was lower at 6%.
Keyera also aims to use the additional free cash flow to lower balance sheet debt. Keyera expects to maintain a solid financial position exiting the quarter with a net-debt-to-adjusted EBITDA ratio of two times, below its target range of 2.5 to 3 times.
Analysts covering Keyera stock expect adjusted earnings to expand from $1.85 per share in 2023 to $2.32 per share in 2025. So, priced at 19 times forward earnings, Keyera stock trades at a 5% premium to consensus price target estimates.
Keyera Energy is an energy stock with a steady and growing dividend payout. Its widening base of cash-generating infrastructure assets should help Keyera enhance the dividend yield for shareholders over time.
