Canadian seniors are searching for top dividend stocks to provide a steady stream of reliable income.
Enbridge is buying Spectra Energy for $37 billion in a deal that will create North America’s largest energy infrastructure company.
The move comes amid a flurry of mergers as companies scramble to bulk up while debt is still cheap and the energy sector continues to work its way through a downturn.
Oil prices have recovered some lost ground in recent months, and that is allowing producers to ramp up development spending again. Things are still tough, but the trend bodes well for new pipeline demand in the medium term.
In the meantime, Enbridge and Spectra have a total of $26 billion in near-term commercially secured projects under development. As these assets are completed and go into service, Enbridge expects to see cash flow grow enough to support annual dividend increases of at least 10% through 2024.
Beyond that time frame, the energy sector should be back on track.
Enbridge currently offers a dividend yield of 3.7%.
Inter Pipeline owns natural gas liquids (NGL) extraction assets, conventional oil pipelines, oil sands pipelines, and a European liquids storage business.
The balanced revenue stream has helped the company get through the oil rout in pretty good shape, and management has taken advantage of the tough times in the sector to position the company for growth when the market recovers.
What’s the scoop?
Inter Pipeline recently closed its $1.35 billion purchase of two NGL extraction facilities and related infrastructure from The Williams Companies. The assets were bought at an attractive discount, so Inter Pipeline could see impressive returns on the investment when market prices improve.
The deal also comes with plans for a $1.85 billion propane dehydrogenation project, which has received a $200 million royalty credit from the government of Alberta.
Inter Pipeline just raised its monthly dividend to $0.135 per share, and investors should see steady annual growth in the payout as the new projects begin to generate revenue. At the moment, the distribution provides a yield of 5.4%.
Is one a better bet?
Both stocks are top income picks with reliable distributions and strong growth portfolios.
If you want the best yield and like the idea of owning a niche player, go with Inter Pipeline. If you are more comfortable holding the industry giant, Enbridge is a safe bet.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Walker has no position in any stocks mentioned. The Motley Fool owns shares of Spectra Energy. Spectra Energy is a recommendation of Stock Advisor Canada.