The Motley Fool

2 High-Yield Canadian Dividend Stocks That Look Oversold

Dividend investors are always searching for quality stocks to add to their portfolios.

Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) and Altagas Ltd. (TSX:ALA) to see why they might be attractive today.

IPL

IPL owns natural gas liquids (NGL) extraction assets, conventional oil pipelines, oil sands pipelines, and a liquids storage business in Europe.

The diversified revenue stream has helped the company navigate the oil rout in decent shape, and management has even taken advantage of the tough times to add strategic assets.

For example, IPL purchased two NGL extraction facilities and related infrastructure from The Williams Companies last year for $1.35 billion. The deal was at a significant discount to the cost of building the facilities, so IPL should see some strong returns on the investment once the market recovers.

In addition to the acquisition, IPL has $3 billion in development projects under consideration that could be completed by the end of 2021.

With the newly acquired assets and the organic growth portfolio, IPL should see cash flow grow enough to support steady dividend hikes.

IPL pays a monthly distribution of $0.135 per share. That’s good for an annualized yield of 6.3%.

Altagas

Altagas owns gas, power, and utility businesses in Canada and the United States.

The company has grown over the years through a combination of strategic acquisitions and organic growth, and that trend continues.

Altagas is in the process of buying Washington D.C.-based WGL Holdings Inc. for $8.4 billion. The deal is scheduled to close next year, and Altagas says it should see a jump in earnings per share of at least 7% as a result.

The company also has a number of development projects on the go, including the expansion of its Townsend facility and the construction of a propane-export terminal in British Columbia.

Other developments include a natural gas storage site in Nova Scotia and the recently opened battery storage facility in California.

Management plans to raise the dividend by at least 8% per year through 2021.

The stock sold off in the wake of the WGL announcement and has remained under some pressure amid a broader sell-off in the energy sector.

As a result, the current distribution provides a yield of 7%.

Is one more attractive?

Both stocks are trading near their 12-month lows, providing attractive yield and the potential for some nice capital gains once the energy sector recovers.

Altagas offers exposure to the United States and provides a slightly better yield today, but the stock probably carries more risk until the WGL deal closes.

IPL’s payout ratio in the last quarter was 61%, so there is ample room for dividend hikes, even if the oil sector remains under pressure. The European assets provide a nice hedge against weakness in Canada.

At this point, I would call it a draw between the two names.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Andrew Walker owns shares of Altagas. Altagas is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.