Contrarian investors are always searching for beaten-up names that are on the cusp of a rebound.
Altagas is best known in the media for its decision to shelve the Douglas Channel liquefied natural gas (LNG) facility it had planned to build on the coast of British Columbia.
Abandoning the project was the right decision for the company, and investors should focus on the strength of the existing assets when evaluating the stock.
Altagas operates natural gas distribution and electricity generation businesses in the United States and Canada. The assets base is split between the two countries, providing investors with an easy way to get some U.S. exposure.
Management has a knack for finding tuck-in acquisitions that complement the existing portfolio. For example, the company bought three gas-fired power-generation facilities in northern California late last year that added about $95 million in incremental contracted EBITDA per year and boosted cash flow by 5%.
Altagas recently hiked its monthly dividend to $0.175 per share. That’s good for a yield of 6.3% today.
The stock is down significantly from its highs in recent years, and investors could see some strong upside potential once the energy sector begins to recover.
Inter Pipeline operates natural gas liquids (NGL) extraction facilities, oil sands infrastructure, conventional oil pipelines, and a Europe-based liquids storage business.
The diversified nature of the revenue stream has helped the company navigate the oil rout reasonably well. Second-quarter funds from operations (FFO) rose 9% compared with the same period last year with FFO increasing in all four of the company’s business segments.
Inter Pipeline is taking advantage of the weak market conditions to add new assets. The company recently announced plans to acquire two NGL extraction facilities and related infrastructure from The Williams Companies for $1.35 billion.
Inter Pipeline is paying just 55% of the original construction cost of the assets, so investors could see some impressive returns if market prices recover the way management hopes.
Inter Pipeline raised its monthly dividend last November, and another hike could be in the cards once the new assets are integrated into the portfolio. The current payout yields 5.7%.
Is one a better bet?
Both stocks pay reliable dividends and offer strong potential for capital gains once the oil market improves. If you want the highest yield while you wait for the recovery, go with Altagas as the first pick.
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Fool contributor Andrew Walker has no position in any stocks mentioned. Altagas is a recommendation of Stock Advisor Canada.