Pembina's Coming Switch from Monthly to Quarterly Dividends Unlikely to Impact Annual Payout Rate

Pembina Pipeline will move from a monthly to a quarterly dividend payment in 2023, with payouts expected in March, June, September, and December of each year. The last monthly dividend is set to be paid on December 30.

While this change may disappoint investors who prefer more frequent dividend payments, management took this action to align "Pembina's dividend practices with the vast majority of its peers" and other large companies on the Toronto Stock Exchange.

Paying once every three months also gives Pembina a little more cash flow flexibility compared to the monthly distributions the firm has made without interruption since 1997.

However, investors can feel anxious whenever a company tinkers with its dividend policy.

Pembina has not confirmed the amount of its yet-to-be-declared quarterly dividend. But we expect the Canadian midstream services provider to maintain its current annual dividend rate, divided over four rather than 12 payouts.

Pembina's dividend remains well supported by the firm's conservative payout ratio, which we estimate will sit near 60% in 2023 after accounting for all capital expenditures.

Pembina's BBB rated balance sheet looks solid as well, with leverage tracking to hit its lowest leverage since 2013 (and below management's target range).

This reduces risk from rising interest rates and provides flexibility for Pembina to pursue acquisitions and other growth opportunities.

Pembina's business continues growing as well, driven by higher volumes and tolls on the company's conventional pipelines and fractionation facilities.

Management expects Pembina's fee-based business, which accounts for the majority of cash flow and supports the dividend with its steadier performance, to record 5% growth in adjusted EBITDA in 2023.

Overall, Pembina's change in dividend payment frequency has no bearing on the company's dividend profile or long-term outlook.

Pembina remains one of the more conservative investments in the midstream space. Investors who valued the firm in part for its frequent payout can consider reviewing the rest of the monthly dividend stocks in the market for other ideas.

Once Pembina declares its first quarterly dividend, likely in February, our site will update the firm's dividend amount and payment frequency. Our portfolio tracker's Income Calendar will reflect this information then, too.