Dividend investors are always searching for quality stocks to add to their portfolios.
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 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.
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Fool contributor Andrew Walker owns shares of Altagas. Altagas is a recommendation of Stock Advisor Canada.