Month-to-month Dividend Inventory In Focus: Keyera Company


Revealed on March twenty fourth, 2023 by Aristofanis Papadatos

Keyera Company (KEYUF) has two interesting funding traits:

#1: It’s a high-yield inventory primarily based on its 6.9% dividend yield.
Associated: Listing of 5%+ yielding shares.
#2: It pays dividends month-to-month as an alternative of quarterly.
Associated: Listing of month-to-month dividend shares

You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink beneath:

 

The mixture of a excessive dividend yield and a month-to-month dividend render Keyera Company interesting to particular person buyers.

However there’s extra to the corporate than simply these components. Hold studying this text to be taught extra about Keyera Company.

Enterprise Overview

Keyera Company engages within the gathering and processing of pure gasoline; and transportation, storage, and advertising of pure gasoline liquids in Canada and the U.S. It operates by way of Gathering and Processing, Liquids Infrastructure, and Advertising and marketing segments. The corporate was previously often called Keyera Amenities Revenue Fund and altered its title to Keyera Company in 2011. Keyera was based in 2003 and is headquartered in Calgary, Canada.

Keyera has some engaging traits. To start with, it has belongings in high-value markets, that are characterised by excessive limitations to entry.

Supply: Investor Presentation

Keyera additionally operates with a extremely built-in enterprise mannequin, which leads to broad revenue margins. As well as, the corporate is making nice efforts to cut back its carbon dioxide emissions and has set formidable objectives for emission reductions.

As Keyera has a enterprise targeted on pure gasoline and pure gasoline liquids, it has exhibited a extremely unstable efficiency document as a result of cycles of the pure gasoline business. Then again, Keyera is much less susceptible to the cycles of the value of pure gasoline than pure gasoline producers. In consequence, it has remained worthwhile each single yr over the past decade, in sharp distinction to most upstream gamers on this business.

Identical to nearly all of the oil and gasoline producers, Keyera noticed its earnings collapse in 2020 as a result of plunge of the value of pure gasoline attributable to the pandemic. Nevertheless, in distinction to its friends, the corporate remained worthwhile in that exceptionally adversarial yr. Even higher, due to the huge distribution of vaccines worldwide, the pure gasoline market recovered in 2021, and thus the corporate returned to excessive profitability in that yr.

Then again, buyers ought to be aware that the defensive enterprise mannequin of Keyera has two faces. It renders the corporate extra resilient to the downturns of its business however doesn’t enable it to learn as a lot because the upstream firms throughout increase instances.

In early 2022, the onset of the conflict in Ukraine rendered the worldwide gasoline market extraordinarily tight. In consequence, the value of pure gasoline skyrocketed to a 13-year excessive final yr. That rally led gasoline producers to publish document income final yr. Quite the opposite, Keyera noticed its earnings per share dip 6%, principally as a result of elevated capital bills.

Development Prospects

Keyera tries to develop its earnings by enhancing the capability of its services and by increasing its community. The corporate is at present within the strategy of integrating its North area gathering and processing services with the guts of its built-in worth chain at Fort Saskatchewan. When this undertaking is accomplished, it’ll considerably improve the expansion potential of Keyera.

Then again, as talked about above, Keyera is delicate to the cycles of the pure gasoline business. That is clearly mirrored within the unstable efficiency document of the corporate. Over the past 9 years, Keyera has grown its earnings per share by solely 2.4% per yr on common.

Keyera at present enjoys robust enterprise momentum, partly due to the Ukrainian disaster and the deep manufacturing cuts applied by OPEC in an effort of the cartel to help the value of oil. As a result of tight manufacturing quotas of OPEC, the U.S. and Canada have turn out to be the first international producers which might be growing their manufacturing with a purpose to stability the market. In consequence, larger volumes of pure gasoline move by way of the community of Keyera.

Given the optimistic enterprise momentum but additionally the unstable nature of the enterprise of Keyera, we anticipate its earnings per share to develop by about 2.5% per yr on common over the following 5 years, roughly consistent with the historic progress charge.

Dividend & Valuation Evaluation

Keyera is at present providing an above-average dividend yield of 6.9%, which is greater than quadruple the 1.6% yield of the S&P 500. The inventory is thus an fascinating candidate for income-oriented buyers however the latter must be conscious that the dividend will not be protected as a result of cyclical nature of the pure gasoline business.

Keyera is doing its finest within the components of its enterprise it might management. Since 2008, the corporate has grown its distributable money movement per share by 7% per yr on common.

Supply: Investor Presentation

Keyera targets a payout ratio of fifty%-70% and has a robust stability sheet, with a leverage ratio (Internet Debt to EBITDA) of two.5. In consequence, its dividend has a margin of security.

Then again, as a result of cyclicality of the enterprise of Keyera, its dividend will not be totally protected. As well as, U.S. buyers must be conscious that the dividend acquired from this inventory is dependent upon the alternate charge between the Canadian greenback and the USD.

In reference to the valuation, Keyera is at present buying and selling for 19.0 instances its earnings per share within the final 12 months. We assume a good price-to-earnings ratio of 18.0 for the inventory. Subsequently, the present earnings a number of is considerably larger than our assumed honest price-to-earnings ratio. If the inventory trades at its honest valuation stage in 5 years, it’ll incur a -1.1% annualized drag in its returns.

Making an allowance for the two.5% annual progress of earnings per share, the 6.9% present dividend yield, and a -1.1% annualized contraction of valuation stage, Keyera might supply a 7.5% common annual complete return over the following 5 years. It is a first rate anticipated return, however we suggest ready for a decrease entry level with a purpose to improve the margin of security and enhance the anticipated return.

Closing Ideas

Keyera has a extra defensive enterprise mannequin than pure gasoline producers and is providing an exceptionally excessive dividend yield of 6.9%. Due to its robust stability sheet, the corporate will not be more likely to lower its dividend anytime quickly. In consequence, it’s more likely to entice some income-oriented buyers.

Nevertheless, the corporate has exhibited a extremely unstable efficiency document as a result of its enterprise cycles. Subsequently, buyers ought to watch for a extra engaging entry level.

Furthermore, Keyera is characterised by extraordinarily low buying and selling quantity. Which means it might be exhausting to determine or promote a big place on this inventory.

If you’re interested by discovering extra high-quality dividend progress shares appropriate for long-term funding, the next Certain Dividend databases might be helpful:

The key home inventory market indices are one other stable useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month:

Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].





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