1 Under-The-Radar Pipeline Company Investors Should Consider

By Motley Fool Staff Markets Fool.com

In this Industry Focus clip, Motley Fool energy analysts Sean O'Reilly and Taylor Muckerman take a look atPembina Pipelines (NYSE: PBA), a solid Canadian pipeline company that investors might want to take a look at if they're looking for more energy exposure in their portfolio.

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A full transcript follows the video.

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This video was recorded on April 27, 2017.

Sean O'Reilly: We had a listener tweet into our@TMFEnergyTwitterhandle. Peter F Smith, @PSUPete, tweets at us and says, "When areyou guys going to do a deep dive intoPembina?"Nailed it. You told me to say it like a Canadian.

Taylor Muckerman:
Yeah. Well, it's even quicker in the YouTube videos, Pembina.

O'Reilly:
Why do they drop the "B"?

Muckerman:
I don't know; it's just the way it sounds. I don't know if they're dropping it or not.

O'Reilly:Toall of our wonderful Canadian listeners, ourneighbors to the north, please tell us why the "B" is dropped.

Muckerman:
It sounds like you can kind of hear a "B," but you can't really hear the "B." Pembina.

O'Reilly:You can't really hear the "B." Stop.

Muckerman:
Pembina Pipelines.

O'Reilly:Nailed it. This guy says, "I would love Taylor's insights." Taylor, what do you think about Pembina?

Muckerman:
There's a lot of pressure. It's aCanadian company, so shout out to the folks I work with onMotley Fool Canadaservices. Pipelines, sonot necessarily having the same constraints as the Permian, because they're dealing with the oil sands, crude oil, oil sands, and natural gas liquids, out of theWestern Canadian sedimentary basin, and ethane fromNorth Dakota and Saskatchewan.

O'Reilly:Is this oil sands?

Muckerman:
Notall of it. It still does regular crude oil and natural gas liquids. But then you have ethane singled out asone of the natural gas liquids. So pretty well diversified in terms of the natural resources that they're funneling through their pipelines. Seems to be growing pretty rapidly, about $1.2 billion in projectscompleted last year,trying to complete $4.3 billion in projects this year. Most of it should be done by the middle of 2017, witha few stragglers coming in toward the end. Definitely upping their capacity, trying to be Canada's largest gas processor. And if you think about the need for thefractionation of natural gas liquids into all their base,ethane and butane and everything,and also just natural gas processing in general, the use of it for energy and input, itseems to be a smart idea.

O'Reilly:
If youhaven't heard of the company,these guys are not small.

Muckerman:
No,they're not small at all.

O'Reilly:They're a $12.9 billion market cap,dividend yield of 4.8%. Is this common? They'reone of those guys that pay a monthly dividend.

Muckerman:
It is fairly common in Canada.

O'Reilly:I like my monthly, check, eh?[laughs]

Muckerman:
Yeah. It's not like50% of the market does it, but yeah, there'scertainly significantly more companies doing it up there than in the United States. Speaking of their dividend, very consistent dividend growth. They just raised their annual dividend by 6.25%. Not yield-wise, but payment-wise.

O'Reilly:That's$0.16 to $0.17 a month,something like that?

Muckerman:
I don't remember exactly what theexact centswork out to on a monthly basis,but the overall paymentfor an annual basis raised by 6.25%, April 3. Andit's not just a one-time thing. They've been raising theirdividends pretty consistently over the last decade or so, and improving margins, improving their cash flow. Certainly seems to beoperating at a very high level. Eighty percent of their contracts and EBITDA come from fees for services, so pretty stable, consistent, you have good foresight into what kind ofrevenue they're going to be making on a year-in, year-out basis. And a very secure customer base, around 80% of their customers having investment-gradecredit ratings orsecured counterparties.

O'Reilly:Sounds like aninteresting company.

Muckerman:
Yeah. If the oil markets go bump again, they're at fairly low risk to have bankruptcustomers that can't foot the bill. So yeah,seems like a good company.I hadn't really ever taken too deep of a dive in it. But I do love the midstream, the pipeline companies in the oil space, if you'regoing to get exposure to energy. And growingcapacity, growing dividend, and sound balance sheets. Certainly worth looking at for anybody that wantsaccess to the Canadian oil markets.

Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman owns shares of Twitter. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.