Keyera: Bucking the Energy Trend

04/30/2015 10:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

At a time when the energy sector is licking its wounds and hunkering down, one company is defying the trend, notes Gordon Pape, editor of The Income Investor.

Keyera Corp. (TSX: KEY) (OTC: KEYUF), which has been on our Recommended List since 2004, is well managed and aggressive. It has seen its share price rise 25% since its December low and analysts are expecting it to go even higher in the coming weeks.

How is this midstream energy firm doing it? Basically, because its business is not significantly affected by movements in the oil price.

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

The company just announced a joint venture with Kinder Morgan (KMI) to build a new oil storage terminal with an initial capacity of 4.8 million barrels on its property near Edmonton.

Oil storage capacity has become a big concern recently so the timing of the announcement was fortuitous and the share price jumped more than $3 on the news.

The second reason for Keyera’s strength is its strong financial position. The company reported record 2014 earnings of $230 million ($2.80 per share), up 56% from 2013.

Distributable cash flow was $389 million ($4.73 per share) in 2014, which was 35% higher than 2013.

The company also announced a dividend increase of 7%. How many energy firms are doing that these days?  The new rate is $0.23 per month ($2.76 annually), for a yield of 3.15%.

The dividend increase and recent two-for-one share split are symptomatic of the third reason the stock has done so well over the years. This company takes care of its investors and shares its success with them.

The only cloud on the horizon is the company’s large amount of debt, which stood at $1.16 billion at yearend. That was up from $770 million at the end of 2013.

Although the company has strong positive cash flow and access to additional credit, there is speculation we could see a new stock issue this year to raise capital. That could temporarily depress the shares, creating a buying opportunity. We continue to rate the stock as a Buy.

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