EUR 850.00 For Business Accounts Only

Morningstar | Keyera Aims to Grow Its Dividend

Keyera operates as a midstream energy business in western Canada. Its primary segments consist of gathering and processing, liquids infrastructure, and marketing. The gathering and processing business operates raw natural gas gathering pipelines and processing plants in Alberta. Keyera processes, stores, and transports crude oil and natural gas byproducts, such as natural gas liquids, within its liquids infrastructure business, supplemented by the marketing of propane, butane, condensate, and isooctane through its marketing business. Keyera’s operations don’t enjoy many of the regulatory protections afforded to pipeline operators, highlighted by the absence of strict approval requirements for new projects. The majority of the company’s operations is not underpinned by long-term contracts and can be terminated on short notice. Additionally, Keyera’s gathering and processing operations are tied directly into natural gas producer’s wellheads, which exposes the company to production cuts. Furthermore, increasing natural gas supply from the Marcellus and Utica regions in the U.S. amplifies Keyera’s risk of underutilizing its assets. The growth portfolio consists of nearly CAD 2 billion in projects, with a focus on condensate infrastructure. Condensate demand in western Canada is expected to increase when oil sands expansion projects are brought on line. However, condensate expansion projects could face headwinds with the continued deferral of oil sands expansion, highlighted by the lack of new pipeline infrastructure. Unlike current infrastructure, Keyera aims to underpin portfolio growth with long-term contracts.We expect Keyera to increase its annual dividend by an average of 8% over the next five years while maintaining an average distributable cash coverage ratio of approximately 1.8 times. The company is in a strong position to benefit from the expected oil sands supply growth in western Canada but continues to be exposed to underutilization of its natural gas assets. Therefore, the stock remains in 3-star territory based on its current infrastructure and near-term growth.