Pembina Pipeline (TSE:PPL) Will Pay A Larger Dividend Than Last Year At CA$0.69

Pembina Pipeline Corporation (TSE:PPL) will increase its dividend from last year's comparable payment on the 28th of June to CA$0.69. This takes the annual payment to 5.5% of the current stock price, which is about average for the industry.

See our latest analysis for Pembina Pipeline

Pembina Pipeline's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Pembina Pipeline was paying out 86% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Earnings per share is forecast to rise by 20.0% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 80% which is a bit high but can definitely be sustainable.

Pembina Pipeline Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$1.62 in 2014, and the most recent fiscal year payment was CA$2.76. This implies that the company grew its distributions at a yearly rate of about 5.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See Pembina Pipeline's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Pembina Pipeline has impressed us by growing EPS at 5.7% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Pembina Pipeline will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Pembina Pipeline that investors need to be conscious of moving forward. Is Pembina Pipeline not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.