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Pembina Pipeline (TSE:PPL) Is Due To Pay A Dividend Of CA$0.21

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The board of Pembina Pipeline Corporation (TSE:PPL) has announced that it will pay a dividend of CA$0.21 per share on the 15th of October. This means the annual payment is 6.4% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Pembina Pipeline

Pembina Pipeline's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even while not generating a profit, Pembina Pipeline is paying out most of its free cash flows as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.

Looking forward, earnings per share could 8.8% over the next year if the trend of the last few years can't be broken. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

historic-dividend
historic-dividend

Pembina Pipeline Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$1.56 in 2011, and the most recent fiscal year payment was CA$2.52. This means that it has been growing its distributions at 4.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Pembina Pipeline's earnings per share has shrunk at approximately 8.8% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Pembina Pipeline's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Pembina Pipeline is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Pembina Pipeline has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.