Let it flow

We update you on each of our income trusts and income stocks on a regular basis, as well as in between those rotating updates where events warrant.

Keyera Inc. (TSX—KEY)

Dean Setoguchi, Keyera’s President and Chief Executive Officer, characterizes the Key Access Pipeline System, or KAPS, project as a game-changer for Keyera. The pipeline, which is being jointly developed by Keyera and SemCAMS Midstream ULC, will connect Keyera’s Montney natural gas gathering and processing business in Alberta, as well as other third-party facilities, to its liquids infrastructure business in Edmonton and Fort Saskatchewan.

Keyera operates an integrated Canadian-based energy infrastructure business with extensive interconnected assets and expertise in delivering energy solutions.

For the six months ended June 30, 2022, Keyera’s distributable cash flow was $387.0 million, or $1.75 a basic share, compared with $312.7 million, or $1.41 a share, in the same period of 2021.

The increase was largely due to a 25-per-cent rise in the realized margin to $632 million. The realized margin is defined as the operating margin excluding unrealized gains and losses on commodity-related risk management contracts. The higher realized margin was primarily due to higher iso-octane margins in the marketing segment.

The KAPS pipeline is now over 70-per-cent complete and is expected to enter service in the first quarter of 2023. The pipeline stands to capture growing volumes from the Western Canadian basin.

Buy for growth and income.

Freehold Royalties Ltd. (TSX—FRU)

Freehold delivered record funds from operations in the first half of this year. The company says these results were fueled by the execution of its North American strategy, which has expanded its asset base to the premier basins of North America. Consequently, it has increased its cash flows, which underpins its ability to increase its dividend and reinvest in its business.

Freehold Royalties receives revenue primarily from royalties on crude oil, natural gas, natural gas liquids and potash properties as reserves are produced over the life of the properties located in Canada and the continental U.S.

For the six months ended June 30, 2022, Freehold’s funds from operations were $155.7 million, or $1.03 a share, compared with $72.6 million, or $0.55 a share, in the same period of 2021. The increase was primarily due to higher production resulting from the company’s acquisitions of U.S. royalty properties, higher third-party drilling activities, higher oil and natural gas prices, and a shift to stronger U.S. pricing.

With the release of its second-quarter results, Freehold increased its monthly dividend 13 per cent to $0.09 a share.

Freehold is well positioned for the remaining quarters of this year as new wells become operational and recent acquisitions add to cash flows. Meanwhile, its balance sheet is strong and the company continues to generate healthy free cash flows.

Freehold Royalties is a buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the November 4, 2022 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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