Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

In these days of historically low interest rates, how does a stock that yields 7.4 per cent sound to you?

Or how about one with a yield of 8.2 per cent?

You can buy either or both right now. Both have investment-grade ratings from two bond rating agencies. Both insist the dividend is secure and will not be cut.

Story continues below advertisement

What’s the catch? The two companies are in the beaten-down energy sector. Neither is involved in exploration and production of oil and gas, but they provide services to the battered industry. That makes them high risk in the eyes of many investors.

Are they worth a shot, in light of their attractive yields? Yes, if you are willing to accept the risk that comes with them. Here are the details.

Pembina Pipeline Corp. (PPL-T)

  • Current price: $33.12
  • Annual payout: $2.52
  • Yield: 7.4 per cent
  • Risk rating: High

Pembina owns and operates an integrated system of pipelines that transport various products derived from natural gas and hydrocarbon liquids produced primarily in Western Canada. The company also owns and operates gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business.

Pembina’s revenue and profits have taken a hit this year, but unlike many companies in the energy sector, it has not cut its dividend. On the contrary, the company has repeatedly stressed its commitment to maintain the monthly payout at a lofty 21 cents a share ($2.52 a year). That works out to a yield of 7.4 per cent at the current price.

Third-quarter results showed revenue of just under $1.6-billion, down from $1.7-billion in the same period of 2019. Earnings were $318-million (51 cents a share, fully diluted), down from $370-million (66 cents) the year before.

Adjusted EBITDA was $796-million, up 8 per cent from $736-million on the third quarter of 2019. New acquisitions acquired from Kinder Morgan were important contributors to the improvement.

The company expects adjusted EBITDA for the year to be within the original guidance range set in the fourth quarter of 2019, albeit near the lower end of that range. Based on the current outlook for the rest of the year, the company has narrowed its guidance range and expects to generate adjusted EBITDA of $3.25-billion to $3.3-billion in 2020. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)

Story continues below advertisement

The balance sheet appears to be in good shape, something that cannot be said for many energy companies. During the second quarter, Pembina’s credit ratings were affirmed at BBB (investment grade) by both Standard & Poor’s and DBRS Ltd., with the outlook or trend maintained as stable.

As for the dividend, the company said last spring that its dividend is more than covered by fee-based cash flows, meaning the company is not reliant on the portion of its business with direct commodity price exposure to pay the current dividend.

In its third-quarter report, the company continued to express confidence. During the first nine months of the year, Pembina’s ratio of common share dividends to adjusted cash flow from operating activities was approximately 60 per cent. Management said the company’s commitment to its dividend can be “evidenced by examining its history.”

The high yield suggests investors are still skeptical that the company will be able to sustain the dividend through 2021 if the economic environment does not improve. But Pembina’s repeated strong insistence that the dividend is secure means events would have to take a disastrous turn for it to reverse course now.

Keyera Corp. (KEY-T)

  • Current price: $22.41
  • Annual payout: $1.92
  • Yield: 8.2 per cent
  • Risk rating: Higher risk

Keyera is primarily in the natural gas and natural gas liquids business, providing such services as gathering, processing, fractionation, storage, transportation and marketing. It does not do any exploration or production.

Like Pembina, Keyera has not cut its dividend and insists it has no plans to do so. In its third-quarter report, the company said its strong balance sheet and low (54 per cent) payout ratio will allow it to continue to fund its growth capital projects without issuing new equity and to maintain its current monthly dividend of 16 cents a share or $1.92 annually.

Story continues below advertisement

At that rate, the stock is yielding 8.2 per cent. As with Pembina, this suggests a high degree of investor skepticism, but the company is adamant that the payout is sustainable.

Third-quarter results saw a 78-per-cent drop in net earnings, from $154.4-million (72 cents a share) in 2019 to $33.4-million (15 cents) this year.

Distributable cash flow fared better, coming in at $174.9-million (79 cents a share) compared with $183.8-million (85 cents) in 2019. Year-to-date, distributable cash flow was $586-million ($2.66 a share), an improvement from $435-million ($2.04) in the first nine months of 2019.

Adjusted EBITDA for the first nine months of the year was $705-million compared with $683-million last year.

“We continue to maintain our strong financial position, a priority that has remained consistent throughout the history of our company,” the company said in a message to shareholders.

“We have a strong balance sheet at Sept. 30, with a net debt to adjusted EBITDA ratio of 2.4 times, two investment grade credit ratings, access to $1.4-billion on our credit facility, and minimal long-term debt obligations in the next five years. In today’s uncertain markets, our financial strength and liquidity enhance our capacity to navigate challenges, while providing flexibility to be opportunistic.”

Story continues below advertisement

So, both companies seem determined to maintain their dividends. Still, I would be cautious. Don’t buy unless you can deal with risk. Talk to your financial adviser before taking action.

Full disclosure: The author owns shares in Pembina.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies