Why PBA Stock Is at Record Highs & Still Has Big Upside
Energy stocks attract a lot of attention because the world still runs on oil, energy companies make a lot of money, and energy stocks pay high-yield distributions.
With the outlook for oil and natural gas being bullish, there are more than enough reasons to consider overlooked energy plays like Pembina Pipeline Corp (NYSE:PBA).
An oil and gas midstream company, Pembina Pipeline has seen its share price go on a tear, rising by 19% over the last six months and 15.5% over the last year (as of this writing). Pembina Pipeline stock hit a new record high of $36.14 on April 9 and continues to trade near that level.
Despite the big gains already, Wall Street analysts foresee PBA stock hitting fresh highs over the coming months. Analysts have provided a 12-month share-price target of $51.00 to $57.00 for Pembina Pipeline Corp. This points to potential gains of 44% to 61%.
Pembina Pipeline stock has given analysts plenty of reasons to be bullish. The company reported record-best fourth-quarter 2023 financial results, closed on a strategic acquisition, and raised its 2024 guidance.
Moreover, for income investors, PBA stock provides reliable, high-yield dividends.
Chart courtesy of StockCharts.com
About Pembina Pipeline Corp
Pembina Pipeline is a Calgary, Alberta, Canada-based oil and gas company that provides energy transportation and midstream services. The business operates through three segments: Pipelines, Facilities, and Marketing & New Ventures. (Source: “Operations,” Pembina Pipeline Corp, last accessed April 23, 2024.)
The Pipelines segment provides pipeline transportation, terminalling, storage, and rail services in key market hubs in Canada and the U.S. for crude oil, condensate, natural gas, and natural gas liquids (NGL). (Source: “Pipelines Division,” Pembina Pipeline Corp, last accessed April 23, 2024.)
This division operates 18,000 kilometers of pipelines across North America. It manages transportation capacity of 2.9 million barrels of oil equivalent (BOE/D), above-ground storage of 10.0 million barrels, and rail terminalling capacity of about 105,000 BOE/D.
In early April, the company completed its previously announced $3.1-billion acquisition of Enbridge Inc’s (NYSE:ENB) interest in the Alliance pipeline, the Aux Sable gas processing facility, and NRGreen Power, which operated waste heat recovery facilities along the Alliance pipeline. (Source: “Pembina Pipeline Corporation Announces Closing of Acquisition of Enbridge’s Interest in Alliance/Aux Sable and Raises 2024 Guidance,” Pembina Pipeline Corp, April 1, 2024.)
With this transaction, Pembina Pipeline, which is the current owner of the Aux Sable facility, is now the sole operator of the Alliance pipeline. The 3,848-kilometer pipeline brings gas from B.C. to the Aux Sable facility in Chicago. Aux Sable is one of the largest NGL processing facilities in North America. (Source: “Pembina Pipeline Closes Alliance, Aux Sable Purchases; Raises Guidance,” Yahoo! Finance, April 1, 2025.)
This led the company to update its 2024 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance from the range between $3.7 billion and $4.0 billion to the range between $4.05 billion and $4.3 billion.
A few days later, Pembina Pipeline announced significant milestones for its Cedar LNG project, which is a proposed floating liquefied natural gas (LNG) facility in Kitimat, B.C. (Source: “Pembina Pipeline Corporation Announces Significant Milestones Achieved on Cedar LNG,” Pembina Pipeline Corp, April 4, 2024.)
This includes an initial 20-year take-or-pay liquefaction tolling services agreement with one company for 1.5 million tonnes per year.
Pembina Pipeline Corp expects Asian markets to be the key growth driver of long-term global LNG demand. Cedar LNG is expected to generate annual run-rate adjusted EBITDA of $200.0 to $260.0 million, net to Pembina Pipeline, from low-risk, long-term take-or-pay cash flows.
Record-High Adjusted EBITDA in Q4 & Full-Year 2023
Pembina Pipeline reported record-best financial results for the fourth quarter of 2023.
The company announced that its fourth-quarter earnings jumped by more than 185% year-over-year to CA$698.0 million, or CA$1.21 per share. It also announced record-high quarterly adjusted EBITDA, which came in at CA$1.03 billion. (Source: “Pembina Pipeline Corporation Reports Record Results for the Fourth Quarter 2023, Provides Business Update, and Declares Quarterly Common Share Dividend,” Pembina Pipeline Corp, February 22, 2024.)
Pembina Pipeline reported full-year earnings of CA$1.78 billion, or CA$2.99 per share, and record-high full-year adjusted EBITDA of CA$3.82 billion.
During the year, Pembina Pipeline Corp entered a long-term contract with Dow Chemical Canada to supply and transport up to 50,000 barrels per day of ethane.
It also signed an incremental long-term contract on the recently reactivated Nipisi pipeline. Furthermore, Pembina Gas Infrastructure—which Pembina Pipeline Corp jointly owns with another company—approved a CA$140.0-million expansion of the Wapiti plant. That expansion will increase natural gas processing capacity by 115 million cubic feet per day.
Quarterly Dividend Maintained at CA$0.6675 Per Share
Excellent financial results have allowed Pembina Pipeline Corp to generate significant free cash flow (CA$2.01 in 2023), which it has used to strengthen its balance sheet and return capital to Pembina Pipeline stockholders.
In March, the company paid first-quarter dividends of CA$0.6675 per share. (Source: “Stock & Dividend,” Pembina Pipeline Corp, last accessed April 23, 2024.)
As of this writing, that translates to a yield of 5.6%.
For shareholders who receive their common share dividends in U.S. funds, the amount paid depends on the Canadian/U.S. dollar exchange rate on the payment date.
The Lowdown on Pembina Pipeline Corp
Pembina Pipeline is a terrific midstream energy company that reported record-best fourth-quarter and full-year 2023 financial results. The company’s continued strong results are due to the fabulous performance of its Pipelines and Facilities divisions as Pembina Pipeline Corp benefits from growing volumes and higher tolls on certain systems.
That momentum is expected to continue. Thanks to its acquisition of the Alliance pipeline, the Aux Sable gas processing facility, and the NRGreen waste heat recovery facilities, Pembina Pipeline was able to raise its 2024 guidance. Moreover, its Cedar LNG project has been making progress.
PBA stock is the trifecta of dividend investing: outstanding financial results; solid guidance; and growing, high-yield dividends.