Keyera Corp's Strategic Dividend Growth and Long-Term Infrastructure Expansion: A Compelling Buy for Income and Growth Investors

In the ever-evolving energy landscape, investors are increasingly seeking companies that balance reliable income with long-term growth. Keyera Corp (KEY.TO) stands out as a prime example of this duality. With a recent 4% dividend increase, a robust fee-based cash flow model, and a pipeline of capital-efficient infrastructure projects, Keyera is not just surviving—it's thriving in the transition to a lower-carbon economy. For income-focused investors and those eyeing capital appreciation, this midstream energy giant offers a compelling case.

Dividend Resilience: A Foundation for Income Investors

Keyera's dividend story is one of disciplined growth and sustainability. In Q2 2025, the company raised its payout by 4%, bringing the quarterly dividend to $0.54 per share. This increase was supported by distributable cash flow (DCF) of $159 million, or $0.69 per share, with a payout ratio of 75%—well within its target range. While some might raise eyebrows at a high payout ratio, Keyera's fee-for-service business model ensures stable, recurring cash flows. Unlike commodity-dependent peers, Keyera's cash flows are tied to long-term contracts and infrastructure utilization, not volatile oil prices.

The company's dividend history further underscores its reliability. After transitioning from monthly to quarterly payments in 2023, Keyera has consistently raised its payout, with the annual dividend per share surging from $0.15 in 2019 to $0.54 in 2025—a 260% increase. This trajectory is backed by a net debt-to-adjusted EBITDA ratio of 1.9x, far below its 2.5–3.0x target range, giving it ample flexibility to sustain and grow dividends.

Capital-Efficient Growth: Fueling the Next Phase of Expansion

Keyera's strength lies in its ability to generate growth without overextending its balance sheet. The company's capital-efficient projects, such as the KFS Frac II debottleneck and KAPS Zone 4 expansion, are designed to boost fee-based adjusted EBITDA by 7–8% annually through 2027. These projects are not just about scale—they're about optimizing existing assets. For instance, KFS Frac II, a $150 million investment, is expected to add 10,000 barrels per day of fractionation capacity, directly enhancing margins. Similarly, KAPS Zone 4, a $200 million project, will expand Keyera's liquids infrastructure, further solidifying its role in the Canadian energy value chain.

What makes these projects particularly attractive is their low capital intensity. Keyera's 2025 guidance allocates $300–330 million for growth capital and $70–90 million for maintenance, a fraction of what many peers spend. This efficiency allows Keyera to reinvest in its core while maintaining a healthy payout ratio. Moreover, the company's recent acquisition of Plains' Canadian NGL assets adds a strategic tailwind, providing immediate access to high-margin infrastructure and expanding its customer base.

Energy Transition: A Strategic Edge in a Shifting Market

As the world pivots toward cleaner energy, Keyera is positioning itself as a leader in the midstream sector's decarbonization. The company has already reduced its emissions intensity by 21% since 2019, on track to meet its 25% target by 2025 and 50% by 2035. This is achieved through a mix of operational efficiency, renewable energy integration, and carbon capture, utilization, and storage (CCUS) initiatives.

A standout example is Keyera's 15-year power purchase agreement (PPA) for solar energy, which now covers 10% of its commercial power needs. By 2025, a new carbon-free PPA will push this to 40%, significantly cutting Scope 2 emissions. Additionally, Keyera is developing a low-emissions hub in Alberta's Industrial Heartland, offering CCUS services to customers—a move that not only reduces its carbon footprint but also creates new revenue streams.

Why This Is a Buy for Both Income and Growth Investors

Keyera's dual focus on dividend resilience and strategic growth makes it a rare gem in the energy sector. For income investors, the 4.86% forward dividend yield is attractive, especially in a rising interest rate environment. The company's payout is well-covered by cash flows, with a 60.9% cash flow payout ratio, ensuring sustainability even in downturns.

For growth investors, Keyera's capital-efficient projects and energy transition initiatives offer a clear path to EBITDA expansion. The 7–8% CAGR target for fee-based adjusted EBITDA from 2024 to 2027 is achievable given its current trajectory. Moreover, its involvement in CCUS and hydrogen services positions it to benefit from regulatory tailwinds and emerging markets.

Risks to Consider

No investment is without risk. Keyera's high earnings payout ratio (86.4%) and exposure to debt could be concerns if commodity prices or cash flows dip. However, its fee-based model and strong balance sheet mitigate these risks. Investors should monitor its debt levels and project execution, but for now, Keyera's disciplined approach suggests these are manageable.

Conclusion: A Midstream All-Star

Keyera Corp is a textbook example of how a midstream company can adapt to a changing energy landscape while rewarding shareholders. Its strategic dividend growth, capital-efficient projects, and proactive energy transition efforts create a compelling case for both income and growth investors. With a forward yield of 4.86% and a clear roadmap for EBITDA expansion, Keyera is not just a buy—it's a hold for the long term.