Amid higher energy prices, IBD's Oil & Gas Pipeline industry group ranks 13th out of 197 industries. Canada-based Pembina Pipeline is one of the top stocks in the group, while showing strength and offering an impressive dividend yield.
Pembina Pipeline — today's selection for IBD 50 Stocks To Watch — operates oil and gas pipelines in western Canada. It is headquartered out of Calgary, Alberta.
After a shaky year in the pandemic — which saw the company lose 86 cents per share — Pembina recovered in 2021 with EPS of $1.99. Modest growth is expected into the future, with analysts expecting $2.19 and $2.23 per share for 2022 and 2023, respectively.
In Pembina's first-quarter earnings (reported May 5), the company posted another quarter of solid results. EPS came in at 85 cents while revenue of $3.04 billion was a $1 billion increase from a year prior. This substantial increase was mainly due to higher oil and gas prices, which increased margins. Also, supply increased with Pembina's Prince Rupert Terminal entering service.
Pembina has been eager to expand its pipelines and search for new opportunities. On March 1, the company entered into an agreement to combine western Canadian gas assets with private equity firm KKR. The new venture will be called Newco, and Pembina will own a 60% stake. The deal is currently pending closure under the Canadian competitions act.
Stock To Watch Pembina Pick Offers Strong 5% Yield
Pembina has been rewarding investors through its 5% dividend yield. This makes Pembina a top stock in the IBD 50 for investors who are also looking to generate income. While this dividend has not increased in 2022, the company has announced that upon the closure of the partnership with KKR, it plans to increase the dividend a further 3.6%.
This dividend looks safe, especially since debt levels are low. Pembina has an EBITDA to interest ratio of 7.11. This means firm earnings can cover its annual interest obligations seven times over. In contrast, Pembina's Bloomberg Intelligence peers have an average EBITDA/Interest ratio of only 4.26.
Pembina boasts an IBD Composite Rating of 97. Shares have found support at the 10-week moving average. While that puts the stock in a buy zone from 38 to 41.80, the stock market currently poses high risk for investors. Meanwhile, the stock has been outperforming the market with a relative strength line at new highs.
