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The 8.6% Dividend Yield Of Pembina Pipeline Is Safer Than You Think

Published Wed, 21 Oct 2020 15:44:22 -0400 on Seeking Alpha

Seeking AlphaDividend Ideas | Basic Materials | CanadaThe 8.6% Dividend Yield Of Pembina Pipeline Is Safer Than You ThinkOct. 21, 2020 3:44 PM ET|| About: Pembina Pipeline Corporation (PBA)by: Aristofanis PapadatosAristofanis Papadatos Oil & Gas, portfolio strategy, Value, bondsAristofanis Papadatos.cls-1{fill:#024999;}SummaryPBA has plunged 50% in the last eight months, and thus, it is now offering a nearly all-time high dividend yield of 8.6%.
Such an abnormally high yield usually signals the risk of an imminent dividend cut.
However, thanks to the defensive business model of PBA and its decent balance sheet, its dividend is safer than most investors think.
There has been a record number of dividend cuts this year, particularly in the energy sector, which has been severely hit by the pandemic. Pembina Pipeline (PBA) has plunged 50% in the last eight months, and thus, it is now offering an 8.6% dividend yield. As this yield is abnormally high, most investors view it as a signal of an imminent dividend cut. However, the dividend of Pembina is safer than most investors think.
Business overview
Pembina has an integrated system of pipelines that transport crude oil, natural gas liquids [NGL] and natural gas produced primarily in Western Canada. It also owns gathering and processing facilities. The company has been serving the North American energy industry with its midstream assets for the last 65 years.
Pembina has a diversified business model. Its volume of crude oil and condensates comprises 40% of its total volume, while its NGL and natural gas volumes comprise 30% of the total volume each. Pembina has a remarkably strong business model, which aims to generate reliable and predictable cash flows. The company has increased the fee-based portion of its EBITDA from 77% in 2016 to 90-95% this year. In other words, nearly all its operating income is fee-based, and hence, the company has very low exposure to the gyrations of commodity prices.
The... Read more