Investors looking for Canadian pipeline companies that pay increasing dividends and have a great track record of capital appreciation should consider Enbridge Inc. (TSX: ENB)(NYSE: ENB), TransCanada Corporation (TSX: TRP)(NYSE: TRP), and Pembina Pipeline Corporation (TSX:PPL)(NYSE:PBA) as their top picks.
Here are the reasons why I think these three companies are good long-term investments and give investors diversified exposure to the pipeline sector.
Enbridge Inc.
Liquids pipelines are the largest part of Enbridge’s business and the company constantly works with its customers to provide the added pipeline capacity they need to move their product to the most profitable markets. With new technology in the energy sector driving record levels of North American production, Enbridge is shifting its strategy to provide producers with access to international markets.
Enbridge has $37 billion of commercially secured capital projects under way and most are expected to be in service by the end of 2017. This will add 1.7 million barrels of daily oil and gas liquids transport capacity to the existing infrastructure.
As an example, the construction of Enbridge’s Seaway Twin project is now complete and Enbridge expects to complete its Flanagan South project in late 2014, giving customers an added 600,000 barrels per day in heavy crude transport capacity to the U.S. Gulf Coast. The expansion of this vast pipeline network means shareholders should benefit from a continuous and reliable stream of free cash flow returned to them in the form of increased dividends.
Enbridge has raised its dividend every year for the past 19 years and averaged an annual dividend growth rate of 13% during the past 10 years. It currently pays a dividend of $1.40 that yields about 2.5%.
TransCanada Corporation
TransCanada’s core pipeline business is focused on the delivery of natural gas. The company owns and operates 57,000 km of pipelines in Canada, the U.S., and Mexico.
TransCanada has its own portfolio of commercially secured capital projects under development. Of the $38 billion in projects currently booked, $21 billion is allocated to liquids pipelines and $15 billion is for addition natural gas pipelines. The other $2 billion is connected to TransCanada’s power-generation operations.
TransCanada is also looking to help its customers move product to overseas markets. Its Merrick Mainline Pipeline project will transport natural gas to the Kitimat LNG Terminal in British Columbia, where the natural gas will be liquefied and sent by ship to foreign markets. TransCanada expects Merrick to be in operation by early 2020.
TransCanada pays a dividend of $1.92 per share that yields about 3.2%. The dividend has increased every year for more than a decade, and investors should expect continued dividend increases as capital projects go into service and free cash flow increases.
Pembina Pipeline Corporation
Pembina is smaller than Enbridge and TransCanada but it has a unique asset mix that is critical to the movement of crude oil and natural gas liquids (NGL) in western Canada.
Most investors don’t realize that Pembina actually transports half of Alberta’s conventional crude oil production and roughly 30% of all the NGL produced in western Canada.
One of Pembina’s capital projects is its phase 3 expansion between Edmonton, Alberta, and Taylor, British Columbia. The $2 billion pipeline will run 540 km. and is commercially secured through 30 long-term contracts with Pembina’s customers.
Pembina is also focusing its growth on international markets. It recently signed a deal to build a $500 million propane export terminal in Portland, Oregon, that will ship as much as 37,000 barrels per day to Asian markets. The project should be completed in early 2018.
Pembina’s shareholders have enjoyed a 240% rise in the stock price over the past five years. The dividend of $1.74 currently yields about 3.3%.
The bottom line
Investing in Enbridge, TransCanada, and Pembina gives investors exposure to a diversified portfolio of assets in the pipeline sector. Each company has a strong history of both capital appreciation and dividend growth that should continue given the strength of the numerous capital projects.
