One of the top pipeline players I don’t cover enough (but probably should) is Pembina Pipeline (TSX:PPL). For investors seeking a top-tier dividend stock with meaningful long-term upside, Pembina’s core business model provides plenty to like.
Let’s dive into the company’s fundamentals and attempt to determine whether this stock is worth buying at its present price or if investors may be better suited waiting for a better entry point.
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Stock price performance tied to fundamentals
The good news for long-term investors who have stuck with Pembina is the reality that the company’s recent rise higher has been accompanied by underlying fundamentals, which continue to improve.
Pembina’s recently announced first-quarter (Q1) earnings highlighted strong cash flow growth, which amounted to $1.34 per share this past quarter, nearly doubling the $0.71 per share dividend announced for Q2. This dividend increase amounted to 3% on a year-over-year basis and indicates to investors that the company believes its cash flow growth profile should remain intact for some time to come.
Given the company’s attractive 5.4% dividend yield and its track record of dividend growth over time, I think this pipeline operator looks more attractive than it has in a long time, thanks to its bottom-line improvement seen in past quarters.
Forward guidance also looks strong
Of course, past earnings results only get investors so far. Most investors will want to project out what the future holds for companies like Pembina, which can often be quite difficult to gauge.
Fortunately for Pembina investors, the company’s cash flow growth profile has remained very consistent over time. That’s made the company’s future cash flow prospects easier to estimate on a longer-term basis, and is one of the key reasons why I think this stock is worth considering for those looking to sit tight for a long time.
With Pembina providing forward guidance of adjusted EBITDA between $4.2 and $4.5 billion for the coming year, and approximately $550 million coming from the company’s “new venture” division, there’s a lot to like about the growth prospects here as well. Overall, this looks like a buying opportunity to me, and I wouldn’t be surprised to see the stock trade at least 30% higher over the next three years, holding all else equal.
