When I look for dividend stocks to hold for decades, I favour companies that balance income with growth. They generate cash from existing assets, pay a portion to shareholders, and reinvest the rest to expand the business. Gibson Energy (TSX:GEI) is increasingly showing those qualities, offering investors a 5.7% annualized yield while continuing to invest in infrastructure that could support its future dividends.
Its core Infrastructure business just delivered record adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and strong distributable cash flow. Gibson is also putting more capital behind projects that could deepen its position in North America’s energy network.
In this article, I’ll explain why Gibson Energy’s combination of a 5.7% yield, record infrastructure performance, and new growth projects makes it one of my favourite long-term income stocks.
Source: Getty Images
Gibson Energy stock
Headquartered in Calgary, Gibson stores, gathers, processes, and helps optimize liquids and refined products across North America. Its infrastructure network includes oil terminals, pipelines, rail loading and unloading facilities, and a crude oil processing facility.
GEI stock currently trades at $31.86 per share with a market capitalization of about $5.5 billion. Although the stock has slipped roughly 3.4% recently, its shares are still up about 11% over the last year. Income investors also get a 5.7% annualized dividend yield at the current market price.
Record infrastructure performance
For a dividend stock you plan to own for decades, an attractive yield becomes even more valuable when the underlying business keeps expanding. More importantly, Gibson’s latest results show that its growing infrastructure portfolio is actually translating into stronger operating performance.
In the second quarter, the energy infrastructure firm generated record infrastructure-adjusted EBITDA of $169 million. That figure rose about 11% year-over-year (YoY), mainly due to higher throughput at the Gateway and Edmonton terminals, contributions from the Chauvin Infrastructure Assets, and benefits from restructuring efforts.
Gibson’s marketing segment adjusted EBITDA also nearly doubled YoY to $15 million from about $8 million. Improved margins from higher crack spreads and diversification of its refined products mix supported that increase.
At the consolidated level, Gibson’s adjusted EBITDA climbed about 15% YoY to $169 million. Its second-quarter net income jumped roughly 37% YoY to $83 million, mainly because of stronger segment results and lower income tax expense. However, higher general and administrative expenses and costs related to the Chauvin acquisition and integration partly offset those positives.
Just as importantly for dividend investors, the company’s distributable cash flow increased about 18% YoY in the latest quarter to $96 million. That cash generation adds another layer to its appeal as a long-term income stock.
Building the next leg of growth
In May, Gibson completed its $400 million acquisition of the Chauvin Infrastructure Assets and sanctioned the Hardisty Connection growth project. The company is also advancing the Chauvin expansion project, reinforcing its strategy of growing its infrastructure business over the long run.
Along with that expansion, Gibson has taken steps to maintain financial flexibility. In July, it issued $400 million of 4.5% senior unsecured notes due in 2034 to refinance amounts drawn under its revolving credit facility. The company also extended the maturity of that revolving facility to June 2031.
Overall, Gibson’s record Infrastructure performance, rising distributable cash flow, and investments in new growth projects give the business a solid foundation for the years ahead. Those qualities, coupled with its attractive 5.7% dividend yield, make GEI a compelling dividend stock to buy now and hold for the long haul.
