Pembina: Canadian Pipelines

05/31/2016 8:00 am EST


Chloe Jensen

Chief Analyst, Cabot Dividend Investor

We’re beefing up the high yield tier of our portfolio with a 5%-yielding Canadian pipeline company, explains income expert Chloe Lutts Jensen, editor of Cabot Dividend Investor.

Pembina Pipeline (PBA) owns and operates energy infrastructure and services in British Columbia and Alberta, Canada.

Pembina has a large network of oil and gas pipelines and gas processing facilities in the energy-producing regions of western Canada. Its revenue is almost 80% fee-based, largely insulating Pembina from commodity price fluctuations.

The company is dedicated to providing investors with a high yield; since converting from an income trust to a corporation in 2010, Pembina has paid dividends every month, and has raised the dividend five times.

The annual increases have averaged just above 4%. Pembina also paid monthly dividends for 13 years before converting to a corporation, and has never decreased the dividend.

Pembina’s monthly dividend is denominated in Canadian dollars. The company just increased the dividend by 4.9% in April, and the new monthly rate of 16 Canadian cents per month yields 4.9% at the current US dollar conversion rate.

Pembina is not a low risk investment. The stock is still vulnerable to changes in oil and gas prices, and could also be affected by an energy industry credit crunch.

Despite the company’s focus on long-term, take-or-pay contracts, a large enough downturn in Canadian energy production could still affect Pembina’s volumes.

Risk-tolerant investors whose priority is high monthly income can add PBA to their high-yield portfolio, ideally on a pullback.

Please note that dividends Canadian companies pay to US residents are usually subject to a 15% Canadian withholding tax, unless the shares are held in a qualified retirement account.

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By Chloe Lutts Jensen, editor of Cabot Dividend Investor

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