Parkland Corporation's Dividend Resilience: Navigating Mergers and Renewables

Parkland Corporation (PKI.TO), a leading North American fuel distributor, has long been a stalwart for income investors, offering consistent dividends bolstered by its "eligible" tax status for Canadian shareholders. Yet, its recent strategic shifts—including a high-stakes merger with Sunoco LP—have sparked debates about whether the company can sustain its dividend payouts. Amid regulatory hurdles, shareholder dissent, and a push into renewable infrastructure, the question remains: Is Parkland's dividend still a reliable income play?

The Dividend: A Steady Hand in Volatile Times
Parkland's dividend history is a study in stability. For 2025, the company has maintained a quarterly payout of $0.36 per share, yielding an annualized rate of $1.44—a modest increase from the $0.35 per share paid in late 2024. Crucially, these dividends are designated as “eligible” under Canadian tax rules, meaning investors benefit from a preferential tax rate (typically 33% less than non-eligible dividends). This tax efficiency has made Parkland a favorite among income-focused Canadian portfolios.

The Sunoco Acquisition: Risk vs. Reward
The proposed $9.1 billion acquisition by Sunoco LP, set for a shareholder vote on June 24, is the linchpin of Parkland's current trajectory. The deal offers shareholders a choice between $44 in cash or 0.536 SUNCorp units, with a 25% premium over Parkland's pre-announcement price. Proponents argue the merger creates a $25 billion combined entity, the largest independent fuel distributor in the Americas, with $250 million in annual synergies by Year 3.

But risks loom large. Opponents like Engine Capital—a 2.5% shareholder—argue the SUNCorp units could trade at a discount to Sunoco's existing shares, eroding the premium. Regulatory delays under the Investment Canada Act and Competition Bureau reviews could also push the closing into 2026.

Yet, the merger's operational commitments are clear: Parkland's Calgary headquarters stays intact, Canadian employment is preserved, and the Burnaby Refinery—critical for renewable fuels—remains funded. Sunoco's pledge to return to a 4x leverage target within 18 months post-merger suggests cash flow will remain prioritized.

Renewables and EVs: Diversifying the Cash Flow Engine
Parkland's pivot to renewable fuels, EV infrastructure, and carbon solutions adds a layer of resilience. While specifics for 2025 are light, the company's 2028 roadmap includes:
- 1,800 new ultra-fast EV charging ports, boosting retail revenue streams.
- $7.5 billion in co-processing capacity by 2028, enabling lower-carbon fuel production.
- Carbon trading and solar investments, aligning with demand for ESG-compliant energy solutions.

These initiatives are funded through a $1.3 billion capital allocation plan, with 50% directed at retail growth. The divestment of non-core assets (targeting >$500 million) further signals a focus on high-margin, sustainable operations.

The Investment Case: Dividends Through the Storm
Critics cite near-term risks: a failed vote, SUNCorp underperformance, or regulatory snags. Yet, the dividend's history and strategic underpinnings suggest caution, not panic.

1. Cash Flow Stability: Even without the merger, Parkland's core business—serving 4,000 retail/commercial sites—generates recurring revenue. The $250 million synergy target post-merger adds a safety net.
2. Tax Efficiency: Eligible dividends remain a unique advantage in a low-yield world.
3. Diversification Payoff: Renewables and EVs are long-term trends; Parkland's early investments could pay off as governments mandate cleaner energy.

Final Take: Hold for the Dividend, But Mind the Vote
Parkland's dividend is a resilient income play, but investors should monitor the June 24 shareholder vote closely. A “yes” outcome would unlock synergies and scale, while a “no” could force a messy reevaluation. For now, the 2.5% yield (as of June 2025) and tax benefits justify a cautious hold.

Investment Advice:
- Buy: For long-term income investors willing to ride near-term volatility.
- Hold: Until the merger's outcome is clear; use dips below $40 to add positions.
- Avoid: If regulatory risks or SUNCorp valuation concerns outweigh dividend appeal.

In a world of yield scarcity, Parkland's blend of stable cash flows, tax efficiency, and ESG-aligned growth positions it as a defensive income stock—even as it navigates its biggest strategic shift yet.

Disclosure: The author holds no position in Parkland Corporation.