Pembina Pipeline's Preferred Shares: A Dividend Crossroads

Investors in Pembina Pipeline Corporation's Series 9 preferred shares (PPL.PR.I) face a pivotal moment: the December 1, 2025 reset date that could redefine their dividend income. With a current yield of 4.302% and a structure tied to government bond rates, this reset is both a risk and an opportunity. Let's break down the math, the company's financial health, and what this means for your portfolio.

Dividend Sustainability: Pembina's Strong Foundation

Pembina's first-quarter 2025 results signal confidence. Adjusted EBITDA surged 12% year-over-year to $1.167 billion, driven by its Pipelines Division (up 13%) and strategic acquisitions like the Alliance/Aux Sable deal. The company even raised its common stock dividend by 3% to $0.71 per share, reflecting its cash flow resilience.

For preferred shareholders, the key metric is Pembina's ability to fund quarterly $1.075 dividend payments (equivalent to the 4.302% annual rate). The company's low-risk, fee-based business model—with long-term contracts and take-or-pay agreements—anchors this stability. For example, new volume commitments for its Peace Pipeline and Pouce Coupé systems ensure steady cash flow, even as it navigates risks like U.S. tariffs and commodity volatility.

The Reset Risk: A Game of Bond Yields and Spreads

The Series 9 shares' dividend resets every five years using a formula: 5-year Government of Canada bond yield + 3.91% spread. Here's the rub:

• Current Rate (2020-2025): The last reset used a 0.392% bond yield, leading to the 4.302% rate.
• 2025 Reset Outlook: If bond yields rise (as expected in a tightening rate environment), the new rate could jump. For instance, if the 5-year yield hits 3% in December 2025, the rate would soar to 6.91%—a win for income seekers.
• Downside Risk: If yields drop unexpectedly, the reset could produce a lower rate, pressuring share prices.

Investment Decision: Hold, Convert, or Bail?

1. Hold the Fixed Rate:
2. Pros: A reset to a higher rate would boost income. Pembina's strong EBITDA growth ($4.2–4.5B annual guidance) supports its ability to pay.

3. Cons: If rates spike, the shares might trade below par due to the “yield chase,” forcing investors to sell at a loss.

4. Convert to Floating Rate (Series 10):

5. Pros: Floating rates reset quarterly, shielding investors from abrupt hikes. The current Series 10 yield of ~4% (based on T-bill rates) could rise faster than fixed rates.

6. Cons: Volatility in short-term rates might lead to income swings.

7. The Bottom Line:
   Pembina's dividend policy is clear: preferred shares are paid before common stock, and the company has never missed a payout. Unless oil prices collapse or Pembina's projects fail (unlikely given its track record), the dividend is safe.

Action Plan for Investors

• Hold PPL.PR.I if you're bullish on Pembina's long-term growth and willing to ride rate fluctuations.
• Convert to Series 10 if you fear a prolonged rate spike or prefer quarterly yield adjustments.
• Avoid overpaying: If shares trade above $25 (par value), wait for a dip post-reset.

Final Cramer-Style Take

Pembina's preferred shares are a “buy the dip” opportunity. The reset is a speed bump, not a cliff. With Pembina's fortress-like cash flows and the reset's upside, this is a stock to own in a rising-rate world—if you're ready to bet on Pembina's pipeline dominance. Stay diversified, but don't overlook this dividend stalwart!

Risk Alert: Monitor energy commodity prices and Pembina's debt levels. A recession or pipeline delays could strain cash flow.

Invest wisely—this dividend isn't going anywhere, but the reset math just might surprise you.