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2 High Yield Stocks I’d Buy If I Didn’t Already Own Them

We’re not out of the woods yet with this oil and gas crisis, and energy stocks are feeling it.

In fact, the drilling forecast – which was already not great – has dropped again. The Petroleum Services Association of Canada told Canadians on May 1 its original outlook has dropped by 20%. It had originally forecast that there would be 6,600 new wells drilled in Canada in November 2018, which dropped to 5,600 wells in January. Now that number has dropped yet again to 5,300.

Until capacity issues are resolved, oil and gas companies just don’t want to put in the investment of a new well. And who can blame them?

But that means that there is now an extension on the time investors have to buy up some great stocks. When they do, those energy stocks should absolutely include strong dividends. That way even if the energy industry continues to be on the low side, you’ll still have some cash on hand.

That’s why today I’m recommending that investors take advantage of the cheap stocks that are Pembina Pipeline Corporation (TSX:PPL)(NYSE:PBA) and Enbridge Inc. (TSX:ENB)(NYSE:ENB). Both are strong stocks that should be around for decades to come, with strong and stable dividends to offer investors.

Pembina

The similarity between these two companies start with the fact that they’re both a transportation and midstream service provider, owning and operating pipelines, which oil and gas companies are in desperate need of these days.

And it’s not just during this crisis. Pembina has a number of long-term contracts that would help the company lessen the risks of its midstream operations. The company is still on track to continue its growth portfolio consisting of $3.1 billion projects that will be in service by 2020. On top of that, they have started the process to expand its Phase 6, 7, and 8 expansions, which will continue to add to its cash flow.

All this cash will mean one other great thing for investors: an increase in dividend. Over the next five years, shareholders should see an average of 5% annually, which should be comfortably covered by distributable cash. The dividend is 4.64% at the time of writing, and analysts believe the stock will rise in the next 12 months from where it is at writing at $47.23 to $55 to $60 per share.

That number doesn’t seem too crazy given that the company has grown its earnings by 45% over the past year, with five-year average earnings growth of 29.1%, outperforming others in the industry. So all in, this stock is a great buy and hold for decades.

Enbridge

Now with Pembina is like an amateur boxer, Enbridge is like a WWE champion. It has positioned itself to benefit from a number of current and future projects that have investors completely baffled why this stock is as low as it is, trading at about $49 at the time of writing.

Its Mainline system alone represents 70% of Canada’s takeaway capacity, with regional pipelines operating with direct tie into Mainline. All of its pipelines come from oil sands projects supported by long-term contracts that should see the company produce strong cash flow for several decades. One such pipeline includes the Line 3 Replacement and Expansion, set to be running in 2020.

And even during this down time, investors can look forward to a dividend of 6.04% at the time of writing, and an increase of 10% in 2020. Also, the company has proven it can post predictable earnings results even now, because no matter what, this company is one of the biggest pipeline companies in Canada.

If you’re looking to buy and hold a stock, buy and hold this one. Since 2000, it’s risen almost 500%, and analysts predict it will continue to rise to $60 in the next 12 months. While there have been a few criticisms of this stock during the downturn – such as whether they should have acquired Spectra to increase its debt, or reduce its dividend – the company has proven them wrong with its solid fourth-quarter results. Enbridge was up 10% year over year with a $3.3 billion adjusted EBITDA.

Those numbers should improve further as the company continues its $16 billion expansion projects, which should enable even more cash flow through 2020 and beyond.

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Fool contributor Amy Legate-Wolfe owns shares of ENBRIDGE INC and PEMBINA PIPELINE CORPORATION. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada. Pembina is a recommendation of Dividend Investor Canada.

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