Pembina Pipeline Corporation (TSE:PPL) will pay a dividend of CA$0.21 on the 15th of September. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.
See our latest analysis for Pembina Pipeline
Pembina Pipeline Might Find It Hard To Continue The Dividend
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even while not generating a profit, Pembina Pipeline is paying out most of its free cash flows as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.
Recent, EPS has fallen by 8.8%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Pembina Pipeline Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was CA$1.56, compared to the most recent full-year payment of CA$2.52. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Pembina Pipeline's earnings per share has shrunk at approximately 8.8% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Pembina Pipeline's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Pembina Pipeline is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Pembina Pipeline that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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About TSX:PPL
Solid track record established dividend payer.
