Pembina Pipeline (NYSE:PBA) is one of a small group of dividend stocks that pays its investors each month instead of quarterly. What makes its more frequent payout even more attractive for income-seeking investors is that the Canadian pipeline giant has increased it once per year for the past decade. Overall, it has grown the payout at a 4.5% compound annual rate during that time frame, including by 5% for 2020.  

That dividend growth trend should continue for the next several years. Driving that view is the company's growth strategy, which pushed cash flow up to a record level last year and has it on track to keep rising in 2020.

A slip of paper with the word dividends sits atop a hundred dollar bill.

Image source: Getty Images.

A record year for Pembina

Pembina recently reported its fourth-quarter and full-year results, which showed the power of its expansion plan. The pipeline company produced a record $3.1 billion Canadian ($2.3 billion) of adjusted EBITDA in 2019. That was up 10% year over year and exceeded the high end of its guidance range. Operating cash flow also set a record at CA$2.5 billion ($1.9 billion), a 12% increase from the year-ago period.

The company benefited from two main growth drivers: expansion projects and acquisitions. It placed more than CA$600 million ($450 million) of expansion projects into service last year, including its Duvernay II, Burstall Ethane Storage, and additional infrastructure at its Redwater Complex. It complimented that organic growth by completing CA$4.25 billion ($3.2 billion) in transactions with Kinder Morgan (NYSE:KMI) to acquire Kinder Morgan Canada and the U.S. portion of the Cochin Pipeline.

Pembina's soaring earnings and cash flow gave the company the fuel to continue increasing its dividend. Meanwhile, with its profits growing faster than its payout, its dividend payout ratio fell to around 55% of its cash flow last year, which is a very conservative level for a pipeline company.  

More growth ahead

Pembina expects its earnings to continue climbing in 2020. The company anticipates that its adjusted EBITDA will be in the range of CA$3.25 billion-CA$3.55 billion ($2.4 billion-$2.7 billion). At the midpoint, that's about 10% higher than 2019's level.

Fueling the pipeline company's fast-paced earnings growth will be a full-year contribution from the assets it acquired from Kinder Morgan, as well as an additional boost from expansion projects. Not only will Pembina benefit from a full-year of 2019's expansions, but also the CA$1.2 billion ($900 million) of growth projects that it expects will enter service in 2020.

Pembina has several more expansion projects under construction and in development to drive growth beyond this year. Overall, it has CA$5.6 billion ($4.2 billion) of secured expansion projects under construction that should come online by the end of 2023. The largest one is its CA$2.7 billion ($2 billion) investment into building a world-scale petrochemical plant in Western Canada, which should come online in the second half of 2023. It also has several smaller expansions under construction that should start-up in the 2021-2022 time frame, giving it lots of visible growth for the next few years. 

It has CA$4 billion ($3 billion) of additional expansions in development, which could enhance and extend its growth outlook. It's also exploring opportunities to invest in an LNG export terminal, including its proposed Jordan Cove LNG project in Oregon as well as other potential opportunities in British Columbia.

With such a large pipeline of expansion projects under construction and in development, Pembina Pipeline should have plenty of fuel to continue growing its dividend.  

A solid way to collect a monthly paycheck

Pembina Pipeline generated record earnings and cash flow last year thanks to the dual fuels of its expansion program and its transaction with Kinder Morgan. Those two drivers will continue to power strong growth this year, which allowed it to boost its dividend once again. 

Meanwhile, with lots of additional projects in the pipeline, it should have the fuel to keep growing its cash flow and payout in the coming years. That makes it a solid option for income-seeking investors, especially those who desire a monthly income stream.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.