Canadian investors are searching for reliable dividend stocks to help them meet their savings goals.
Fortis is a natural gas and electricity-generation company with assets located in the United States, Canada, and the Caribbean.
The business has grown substantially over the years through a combination of strategic acquisitions and organic development, and that trend continues.
Fortis spent US$4.5 billion to acquire Arizona-based UNS Energy in 2014 and completed the expansion of its Waneta hydroelectric facility in B.C. in 2015. The additional revenue stream from those assets helped support a 10% dividend hike in the fall of last year.
Now, Fortis is in the process of spending US$11.3 billion to purchase ITC Holdings Corp., an independent transmission company in the United States. The deal is expected to close later this year, and investors should start to see the benefits in 2017.
Dividend investors like Fortis because the company gets 94% of its revenue from regulated assets. This means cash flow should be both predictable and reliable.
Fortis has raised its distribution every year for more than four decades. The current payout yields 3.5%.
Inter Pipeline owns a natural gas liquids (NGL) extraction business, oil sands infrastructure, conventional oil pipelines, and a European liquids storage operation.
The diversified nature of the revenue stream has enabled Inter Pipeline to deliver solid results despite the difficult times in the energy patch.
The company reported Q2 2016 funds from operations (FFO) of $197 million, up 9% compared with the same period last year.
Oil sands FFO rose 5%, conventional oil FFO was pretty much flat, and the European business delivered a 44% increase on the back of new assets in Sweden and higher utilization rates.
The NGL extraction division had a tough 2015, but FFO for Q2 this year was up 31%. Management sees long-term opportunities in the segment and recently announced a $1.35 billion purchase of midstream assets from The Williams Companies.
The deal is at a 45% discount to the cost of building the infrastructure, and the new assets should complement the existing NGL operations. Inter Pipeline expects the purchases to be immediately accretive to FFO on a per-share basis.
The stock pays a monthly dividend of 13 cents per share. That’s good for a yield of 5.5%.
Is one a better bet?
Both stocks are great TFSA picks for dividend investors.
If you only have the cash to buy one, I would go with Inter Pipeline today. The stock offers a higher yield, and investors could see some nice gains once the energy sector gets back on its feet.