Let’s take a look at both companies to see if one is a better pick for your dividend portfolio.
TransCanada’s shares are down more than 20% since the start of the year. The ongoing rout in the energy patch is one part of the story, but investors are also concerned about the company’s ability to get its Keystone XL and Energy East projects built.
Keystone would carry western Canadian oil across the U.S. border and connect with the company’s existing infrastructure to supply American refineries. The project has been held up for several years, and it doesn’t look like President Obama is going to give it the green light. His possible successor, Hillary Clinton, also isn’t a fan.
That means TransCanada will have to hope for a Republican win in next year’s election. So, Keystone is probably a coin flip at this point.
Energy East is designed to transport the oil across Canada to refineries on the east coast. TransCanada has 90% of the capacity already booked with long-term agreements, but politicians are having a tough time agreeing on a deal that would be satisfactory to everyone involved.
At some point, I think Energy East will be built, but it might take a lot longer than planned.
Despite the issues with the big pipelines, TransCanada is making progress with $12 billion in smaller infrastructure projects that should be completed and in service by 2018.
That means cash flow and earnings are still expected to grow at a solid clip, and TransCanada says it will increase the dividend by 8-10% per year through 2017.
TransCanada pays a quarterly distribution of $0.52 that yields about 4.6%.
Shares of Inter Pipeline are down nearly 30% year-to-date. The company is a niche player in western Canada with a strong focus on carrying oil sands product from the producers to the main distribution network.
The ongoing pain in the oil patch is forcing energy companies to cut back on expansion programs, and that is sending fear into the market that Inter Pipeline will not see the same growth it has enjoyed over the past few years.
Inter Pipeline also owns a large bulk liquids storage business based in Europe. The company is actually one of Europe’s largest independent tank storage companies with locations in Sweden, Denmark, and the U.K. Those operations help diversify the company’s revenue stream, but the pipeline business is still the bread and butter of the operation.
Inter Pipeline reported strong Q2 2015 results with year-over year funds from operations increasing by 37.5%. Net income rose 12%.
The company pays a monthly dividend of 12.25 cents per share. That’s good for a yield of 5.7%. The payout ratio is about 72%, so the dividend should be safe.
Which should you buy?
Both stocks look attractive at their current prices and should be solid long-term bets. At this point, TransCanada is probably a safer play. The company is much larger and has a nice mix of both pipeline and power-generation assets.
Inter Pipeline has a better dividend yield, but the distribution in unlikely to grow at the same rate as TransCanada’s over the next two or three years.