We’re half-way through the year, and income investors are still having trouble gaining traction, despite the Bank of Canada rate cut in early June.
As of the close on June 28, all the key income-generating sub-indexes were still in the red. The S&P/TSX Capped Utilities Index was down 3,32 per cent year-to-date, the Real Estate Index was off 5.96 per cent, and the Communications Index had lost a disquieting 13.67 per cent.
Many income portfolios own stocks in these three market sectors. While they continue to generate good cash flow, investors are watching nervously as their share prices drop. Looking at my Income Investor recommended list, BCE Inc. (BCE-T) is down 15.07 per cent this year. Telus Corp. (T-T) has lost 12.17 per cent .RioCan REIT (REI.UN-T) is off 9.72 per cent. Emera Inc. (EMA-T) has given back 9.24 per cent. Canadian Utilities Ltd. (CU-T) is off 7.34 per cent. Fortis (FTS-T) is down 2.46 per cent. And the beat goes on.
These are all sound companies with high yields and a long history of dividend increases. But they are all capital intensive and have been hammered by a combination of high interest rates and a slow growth economy.
They will eventually recover, but it may take a while. In the meantime, what income stocks are doing well at this point?
In fact, many of our picks are showing robust results so far in 2024. They include Fairfax Financial Holdings Ltd. (FFH-T), up 27.31 per cent, Manulife Financial Corp. (MFC-T), ahead 24.42 per cent, Suncor Energy Inc. (SU-T), up 22.85 per cent, Peyto Exploration & Development Corp. (PEY-T), a gain of 21.10 per cent, Valero Energy Corp. (VLO-N), ahead 20.58 per cent), and Procter & Gamble Co. (PG-N), which has gained 12.54 per cent).
Here are updates on three other winners. Prices are as of the close on June 28.
Comments: Pembina has been a steady profit producer for us ever since it was recommended in 2009. The share price is up 11.27 per cent so far this year, plus we have received a dividend increase.
The Calgary-based company owns pipelines that transport hydrocarbon liquids and natural gas products produced primarily in Western Canada. It also owns gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business.
The company reported a solid first quarter. For the three months to March 31, revenue was $1.54-billion, down slightly from $1.62-billion in the same period of 2023. However, profits were up, with net income of $438-million (73 cents per diluted share) compared with $369-million (61 cents a share) in last year’s first quarter.
Quarterly adjusted EBITDA set a record at $1.044-billion, up from $947-million the year before. The company attributed the improvement to higher revenues and profits on the Peace Pipeline system, the reactivation of the Nipisi Pipeline, and a higher contribution from Alliance Pipeline related to higher tolls on seasonal contracts.
Pipeline volumes of 2,598 mboe/d in the first quarter represented a 5-per-cent increase compared with the same period in the prior year.
On April 1, the company announced the completion of the Alliance/Aux Sable acquisition. It aligns with Pembina’s strategy by growing and strengthening its existing franchise and providing greater exposure to resilient end-use markets and lighter hydrocarbons.
In conjunction with the acquisition closing, Pembina updated its 2024 adjusted EBITDA guidance range to $4.05-$4.30-billion (previously $3.725-$4.025-billion). Relative to the previous guidance range, the revised outlook for 2024 primarily reflects the incremental contribution from increased ownership of Alliance and Aux Sable, as well as a stronger outlook in the marketing business.
Pembina’s board of directors raised the common share cash dividend to 69 cents per share, representing an increase of 3.4 per cent. The latest payment was June 28.
Action now: Despite the price increase, the yield is still attractive, and business is thriving. Buy.
Comments: Gibson Energy is a Calgary-based liquids infrastructure company. Its principal businesses consist of the storage, optimization, processing, and gathering of liquids and refined products. The company’s main operations are located at Hardisty and Edmonton, Alberta. Gibson also has a facility in Moose Jaw, Saskatchewan, and an infrastructure position in the U.S.
The company reported first quarter revenue of $3.3-billion. That was an increase of $923-million, or 39 per cent, relative to the first quarter of 2023. The big move was primarily due to higher sales volumes within the Marketing segment and revenue contribution from the Gateway Terminal.
Net income was $40-million, a $48-million, or 54 per cent, decrease over the first quarter of 2023. This was due to the impact of unrealized gains and losses on financial instruments, higher finance and executive transition costs, as well as depreciation and amortization expenses.
Distributable cash flow was $114-million, a 7-per-cent increase from the first quarter of 2023.
The company increased its quarterly dividend by 2 cents a share to 41 cents ($1.64 a year), effective last March. The dividend payout ratio on a trailing 12-month basis is 63 per cent, below the company’s 70 per cent-80 per cent target, based on distributable cash flow.
“We are pleased to announce a strong start to the year, driven by stable, high-quality cash flows from our Infrastructure segment, which includes both our Canadian assets and our now fully integrated Gateway Terminal, which achieved record volumes in March,” said CEO Steve Spaulding.
“These positive financial results further enhance our conservative financial profile, with our payout and leverage ratios at or below our target ranges. As we look forward, we are focused on execution, including contract discussions at our Gateway Terminal and continued construction of the two new TMX tanks at our Edmonton Terminal.”
Action now: Buy. The 7-per-cent yield is very enticing and the stock is up 15.50 per cent year-to-date.
Comments: Keyera is primarily in the natural gas and natural gas liquids (NGL) business, providing such services as gathering, processing, fractionation, storage, transportation, and marketing. It does not do any exploration or production.
Net earnings for the first quarter were $70.9-million (31 cents a share), down from $137.8-million (60 cents a share) the year before. However, adjusted EBITDA improved to $314.3-million from $292.2-million in the same period last year. Distributable cash flow was $205.3-million (90 cents a share) compared with $227.4-million (99 cents a share) in 2023.
“We’ve had a solid start to the year, as the disciplined execution of our strategy continues to drive strong performance across all three of our business segments,” said CEO Dean Setoguchi. “Our integrated value chain makes us more competitive, allowing us to fill available capacity and pursue capital efficient growth opportunities. We are well positioned to maximize shareholder value by continuing to compound returns over the long-term.”
Keyera is in a strong financial position with net debt to adjusted EBITDA at 2.2 times, below the targeted range of 2.5 to 3.0 times. The company says it is well positioned to equity self-fund future growth opportunities when they occur.
The stock is up 18.3 per cent so far this year.
Action now: Buy for yield and modest capital gains potential.
