This Calgary-headquartered mid-stream oil and gas stock operates over 5,000 kilometers of gathering pipelines and 15 natural gas processing plants primarily in Alberta.
Oil and gas stock Keyera Corp. (TSX—KEY) operates an integrated Canadian-based midstream business with interconnected assets. Its predominantly fee-for-service business consists of natural gas gathering and processing; natural gas liquids processing; transportation, storage and marketing; iso-octane production and sales; and an industry-leading condensate system in the Edmonton/Fort Saskatchewan area of Alberta.
The Calgary-headquartered company has an extensive network of over 4,000 kilometres of pipelines and 17 natural gas processing plants located in some of the most prospective, gas prone areas of the Western Canadian Sedimentary Basin. Its liquids infrastructure business processes raw natural gas liquids mix into saleable products, such as propane, butane and condensate.
It also owns transportation hubs and terminals in Texas and Oklahoma.
Since its initial public offering in 2003, Keyera’s distributable cash flow per share has increased at a compound annual rate of 12 per cent.
Cash flow and dividend growing
Over the same period, the company has increased its dividend per share at an annualized rate of eight per cent.
For the first nine months of 2018 distributable cash flow continued to rise. It reached $437.7 million, up 30.1 per cent from $336.5 million in the same period of 2017.
Meanwhile, distributable cash flow per share rose 17.8 per cent to $2.12 from $1.80 the year before.
The increase was primarily due to increased revenue from recent investments including the Norlite diluent pipeline from Edmonton to Fort McMurray and the Base Line crude oil storage terminal near Edmonton. Plus, the liquids infrastructure segment benefited from strong demand for its diluent handling services. Finally, the marketing segment benefited from strong margins from iso-octane, liquids blending and condensate.
Distributable cash flow was healthy enough to allow for a seven-per-cent increase in the monthly dividend in September to $0.15 a share.
Capital projects continue at 3 gas plant locations
Though natural gas prices have been volatile, producers remain active in liquids-rich plays in the Western Canadian Sedimentary Basin, such as Cardium and Viking. Given its existing network of integrated assets and its development plans in the area, Keyera is well positioned for growth from this activity. Among its development plans, it continues to pursue capital projects at its Simonette, Wapiti and Pipestone gas plants.
The stock trades at a reasonable 9.9 times Keyera’s likely cash flow of $2.85 a share. The annual dividend of $1.80 a share yields 6.3 per cent.
Keyera Corp. is a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the March 2019/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •3/27/19 •