Pembina Pipeline: Q4 Delivers Much Of The Same, Plus A New Growth Project

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On Thursday, Feb. 23, 2023, Canadian midstream elephantine Pembina Pipeline Corporation (NYSE:PBA) announced its 4th fourth 2022 net results. These results mostly continued nan caller inclination that we person been precocious seeing of midstream companies reporting stronger results than successful nan prior-year quarter. Pembina Pipeline hit nan expectations of its analysts successful position of gross and posted mild growth, though nan marketplace has not been peculiarly impressed pinch nan company's capacity arsenic nan banal value is down complete nan past week:

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This weakness whitethorn not beryllium wholly a guidance to nan company's net results arsenic crude lipid prices person besides gone down complete nan past week. As I person pointed retired successful nan past, Pembina Pipeline's financial capacity is not straight linked to crude lipid prices. The banal does thin to waste and acquisition pinch a relationship to nan commodity, though. In fact, nan company's results mostly show a awesome woody of stableness on pinch guardant maturation potential, which is precisely what we expect from this company. Pembina Pipeline has earned its spot arsenic a halfway holding successful immoderate income investor's portfolio and it continues to merit this reputation.

Earnings Results Analysis

As my long-time readers are nary uncertainty good aware, it's my accustomed believe to stock nan highlights from a company's net study earlier delving into an study of its results. This is because these highlights supply a inheritance for nan remainder of nan article arsenic good arsenic service arsenic a model for nan resultant analysis. Therefore, present are nan highlights from Pembina Pipeline's fourth-quarter 2022 net results:

• Pembina Pipeline brought successful full gross of CAD$2.699 cardinal successful nan 4th fourth of 2022. This represents a 5.43% summation complete nan CAD$2.560 cardinal that nan institution reported successful nan prior-year quarter.
• The institution reported an adjusted EBITDA of CAD$925 cardinal successful nan reporting period. This represents a 4.64% diminution complete nan CAD$970 cardinal that nan institution reported successful nan year-ago quarter.
• Pembina Pipeline announced nan description of its Redwater fractionation installation successful Alberta, Canada. The institution will beryllium investing CAD$460 cardinal to adhd an further fractionation train that will beryllium tin of processing 55,000 barrels per time of earthy state liquids.
• The institution switched to a quarterly dividend from its erstwhile monthly one, arsenic was expected. The caller dividend will beryllium CAD$0.6525 per communal stock to beryllium paid connected March 31, 2022.
• Pembina Pipeline reported a nett income of CAD$243 cardinal successful nan 4th fourth of 2022. This represents a important 203.75% summation complete nan CAD$80 cardinal that nan institution reported successful nan 4th fourth of 2021.

As stated successful nan introduction, crude lipid prices person been somewhat anemic complete nan past week. This is simply a continuation of nan wide diminution that we person been seeing since nan mediate of 2022 arsenic recession fears and monetary tightening by various cardinal banks person been applying downward unit connected prices. However, crude lipid prices successful nan 4th fourth of 2022 were still somewhat higher than successful nan aforesaid play of 2021:

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However, crude lipid prices do not person a peculiarly ample effect connected Pembina Pipeline's financial performance, moreover though nan company's banal value capacity does thin to correlate pinch crude lipid prices. This is because of nan business exemplary that Pembina Pipeline uses. In short, nan institution enters into semipermanent (usually 5 to 10 years successful length) contracts pinch various customers. Under nan position of these contracts, Pembina Pipeline provides proscription for crude oil, earthy gas, and earthy state liquids for its customers. The customer past compensates Pembina Pipeline based connected nan measurement of resources transported, not connected their value. This business exemplary evidently provides nan institution pinch a awesome woody of insulation against fluctuations successful power prices. Approximately 80% of nan company's gross comes from these contracts:

Pembina Pipeline

This is bully for america arsenic income investors owed to nan stableness that it provides. This is not only because these contracts supply nan institution pinch protection against assets value changes. After all, 1 point that we often spot erstwhile power prices is that upstream producers thin to trim backmost connected their production. We saw this hap backmost successful 2020 erstwhile crude lipid prices fell, and this was 1 of nan large reasons for nan proviso shortage backmost successful 2021 that spiked power prices. As Pembina Pipeline's gross is limited connected volumes transported, specified a accumulation trim could beryllium expected to trim nan company's gross since less resources would request to beryllium transported. However, nan institution has a measurement to protect itself against this arsenic well. This comes from nan truth that Pembina Pipeline's contracts incorporate minimum measurement commitments, which specify a definite minimum measurement of resources that must beryllium sent done nan company's infrastructure aliases paid for anyway. This provides a baseline level of gross and, astir importantly, rate travel that provides a awesome woody of support for nan dividend. This is precisely nan point that we admit successful an income investment. We tin spot nan wide stableness provided by this exemplary supra successful nan truth that nan company's financial capacity did not alteration very overmuch compared to nan prior-year 4th contempt nan different assets value environment.

Naturally, arsenic investors, we want much than specified stability. We want to spot growth, which Pembina Pipeline is rather good positioned to deliver. As stated successful nan highlights, nan institution precocious unveiled a CAD$460 cardinal description to its Redwater fractionation complex. Pembina Pipeline's Redwater fractionation analyzable located successful Redwater, Alberta, Canada, is 1 of nan largest earthy state liquids fractionation accommodation successful Canada:

Pembina Pipeline

It's presently tin of processing astir 200,000 barrels per time of earthy state liquids. Fractionation is nan separation of earthy state liquids into various components, specified arsenic propane, butane, ethane, and truthful on. As such, it's a captious portion of nan worth concatenation successful getting these products from nan shaper to nan end-user. As I mentioned successful a previous article, nan request for these products has been growing. This is particularly existent for propane, which is utilized for abstraction heating and cooking successful agrarian areas that deficiency earthy state distribution infrastructure, and ethane, which is utilized successful nan manufacture of various plastics and polymers. Pembina Pipeline mentioned this increasing request successful its net property release, which prompted nan institution to statesman activity connected expanding nan capacity of nan facility. The institution announced that it will beryllium spending CAD$460 cardinal to adhd a caller fractionator to nan complex. This caller fractionator will adhd astir 55,000 barrels per time of earthy state liquids processing capacity to nan facility, bringing its full capacity up to 255,000 barrels per time erstwhile this task is complete. This task is expected to beryllium complete during nan first half of 2026 truthful we will, unfortunately, request to hold a fewer years earlier we really spot nan effect connected nan company's financial performance. It's bully to spot that Pembina Pipeline has immoderate semipermanent maturation projects, however, this task will beryllium successful summation to nan projects that Pembina Pipeline has been moving connected for immoderate clip for illustration nan Peace Pipeline Expansion Project.

One of nan nicest things astir nan Redwater description is that Pembina Pipeline already has secured contracts pinch its customers for nan usage of this caller capacity. This is bully because we tin beryllium definite that nan institution is not spending an tremendous magnitude of money to conception fractionation infrastructure that cipher wants to use. It besides intends that Pembina Pipeline has a reasonable thought of really profitable nan caller fractionation train will beryllium and that it offers a capable return to warrant nan first investment. The company, unfortunately, did not authorities what its expected return is successful nan net merchandise but projects for illustration this usually salary for themselves successful astir 4 to six years. That's astir apt a reasonable conjecture for nan return here, but we do not cognize this for certain.

During nan 4th quarter, Pembina Pipeline completed activity connected 2 of nan maturation projects that we discussed successful erstwhile articles connected nan company. These are nan Empress Cogeneration Facility and Phase IX of nan Peace Pipeline Expansion Project. The Empress Cogeneration Facility was a spot of an different task for Pembina Pipeline arsenic it was simply a earthy state powerfulness works providing powerfulness to an existing earthy state liquids extraction plant. This was not really overmuch of a maturation project, though it whitethorn trim nan company's costs a bit. Phase IX of nan Peace Pipeline Expansion Project, meanwhile, was surely a maturation task arsenic it increases nan capacity of earthy state liquids pipelines moving hydrocarbon products done nan corridor northbound of Gordondale, Alberta, Canada:

Pembina Pipeline

As nan caller pipelines added done this task began operating during nan 4th quarter, we do spot immoderate of this project's effect connected Pembina Pipeline's 4th fourth results. However, location will beryllium a larger effect during nan first 4th of 2023 because nan task will person operated for nan full 4th arsenic opposed to simply portion of it. This should truthful supply a spot of maturation during nan first half of this year.

Dividend Analysis

As stated a fewer times passim this article, Pembina Pipeline has been a halfway holding for income-focused investors for galore years now. This is owed to nan company's historically precocious yield, financial stability, and its monthly dividend that allowed for accelerated compounding. Unfortunately, arsenic I discussed successful my last article connected Pembina Pipeline, nan institution abandoned its monthly dividend costs schedule starting successful 2023. That's disappointing, peculiarly for those who are depending connected nan institution for money to salary their bills and different monthly expenses. It besides intends those group that reinvest nan dividends will not bask arsenic accelerated compounding arsenic successful nan past. However, nan caller quarterly schedule puts nan institution successful nan aforesaid vessel arsenic beautiful overmuch each different midstream power institution truthful it's not really nan extremity of nan world. In conjunction pinch its 4th fourth net release, Pembina Pipeline announced a CAD$0.6525 per stock quarterly dividend, which is successful statement pinch nan dividend that it paid from September 2022 until December 2022, though it's higher than nan monthly dividend that Pembina Pipeline was paying anterior to that date:

Pembina Pipeline

This continues a agelong drawstring of yearly dividend maturation for nan institution and gives nan institution a 5.35% output astatine nan existent price. This is rather appealing during inflationary times, specified arsenic nan 1 that we are experiencing today. After all, ostentation is perpetually reducing nan number of equipment and services that we tin acquisition pinch nan dividend that nan institution pays out. This tin make it consciousness arsenic though we're getting poorer and poorer pinch nan transition of time. The truth that Pembina Pipeline increases nan magnitude that it pays retired each twelvemonth helps to offset this effect and maintains nan purchasing powerfulness of nan dividend.

As is ever nan lawsuit though, it's captious that we guarantee that nan institution tin really spend nan dividend that it pays out. After all, we do not want to beryllium nan victims of a dividend trim since that would some trim our incomes and apt origin nan stock value to decrease.

The accustomed measurement that we judge Pembina Pipeline's expertise to support its dividend is by looking astatine its operating rate flow. This is because nan company's finances look overmuch for illustration a inferior arsenic its volume-based statement business exemplary delivers nan aforesaid benignant of stableness that we expect from inferior companies. During nan 4th fourth of 2022, Pembina Pipeline had an operating rate travel of CAD$947 million. That useful retired to CAD$1.72 per communal share. As nan institution only pays retired $0.6525 per communal share, it evidently has much than capable rate travel to screen nan dividend pinch a awesome woody of money near complete for different purposes. Overall, it should not person immoderate peculiar trouble maintaining nan dividend astatine nan existent level. There's small logic for america to interest astatine this time.

Conclusion

In conclusion, Pembina Pipeline's astir caller results delivered nan wide stableness that we person travel to expect from this company. Its volume-based contracts relationship for astir of its gross and this provides a awesome woody of protection from extracurricular factors. We besides spot that nan institution completed activity connected 2 of nan projects that we person been discussing complete nan past 2 years, which positions it to present maturation successful nan first half of this year. Its recently announced Redwater fractionation description should let nan institution to proceed to present guardant growth, though it will not travel online until 2026. In fact, nan only disappointing point present is that nan institution switched to a quarterly dividend costs schedule, but we were expecting that, and it's not really nan extremity of nan world. Overall, nan institution continues to look for illustration a coagulated halfway holding for immoderate income investor.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

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