2 Oil Stocks to Buy and Hold if You’re a Pipeline Optimist

Investors in Enbridge Inc. (TSX:ENB)(NYSE:ENB) and one other pipeline stock could have an interesting week ahead of them.

| More on:
Gas pipelines

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

While not many utilities companies come close to being as solid and dependable as Enbridge (TSX:ENB)(NYSE:ENB), there are a few stocks out there to that could compete for a space in your income portfolio. Take a company that often gets mentioned in the same breath as Enbridge, such as Inter Pipeline (TSX:IPL).

Stock pundits like Inter Pipeline for its plump dividend yield, currently up at a seriously tempting 8.3%. Though Inter Pipeline underperformed the market in terms of year-on-year returns, coming in negative by 16.5%, its size, diversified nature, and stability of its payments make it a strong buy for any utilities investor looking to cash in on positive developments in the oil patch.

Perhaps one of the most interesting areas of business for Inter Pipeline will be its recyclable plastics operations. Pumping $3.5 billion into its petrochemical plant, Inter Pipeline will turn propane into polypropylene plastic. A highly recyclable material with many industrial uses, this segment of operations is likely to introduce a lucrative new stream of revenue for the company, which can only mean good things for its dividend.

Enbridge is still the main player on the pipeline stage

A diversified energy company and a giant in the pipeline landscape, Enbridge is currently paying out a chunky dividend yield of 6.1%. Enbridge has not only improved its balance sheet, bringing its debt down over the last five years, but it’s also outperformed the Canadian oil and gas industry over the last 12 months, which saw an average drop in returns of 14.2%.

What oil investors need to keep an eye on over the next few days is the contentious Bill C-69 debate. With a decision due to be passed June 18, a potential sea change in the way Ottawa makes its mind up about major energy projects is imminent. Oil-heavy stocks like Enbridge and Inter Pipeline are on the front line here, with pundits split as to which way the cookie will crumble.

“The topic of the day is whether we can build pipelines in this country,” Enbridge head Al Monaco stated at the company’s recent annual meeting. However, while he went on to add that the company would pursue energy exports while working on cutting global emissions, he added the caveat, “We are squandering this opportunity.”

That the oil patch has seen a fall-off in investment during the course of the last two years should be no great surprise to any market observer who knows a thing or two about the hold-up in pipeline developments. It’s also no secret that Canada is facing a problem with oil takeaway capacity and the inability to build basic energy infrastructure is dampening the sector.

The bottom line

Pending developments in the pipeline debate, Inter Pipeline and Enbridge’s commitments to expanding their natural gas transmission operations and command of the market make them strong choices for an investor bullish on oil-heavy utilities. Positive developments in government-level pipeline discussions are likely to see both stocks climb, with improvements in energy infrastructure serving only to strengthen their dividends.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »

oil and natural gas
Energy Stocks

Can Cenovus Stock Outperform in H2 2022?

Is now the time for investors in Cenovus (TSX:CVE)(NYSE:CVE) stock to buy more, or wait out this volatility right now?

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Energy Stocks

NexGen Energy: The Top Uranium Stock Set to Double in 2022

NexGen (TSX:NXE)(NYSE:NXE) stock is one of the top uranium stocks to consider right now with the potential to double in…

Read more »

energy industry
Energy Stocks

Why Suncor Energy (TSX:SU) Stock Has Declined 20% in June

Will Suncor Energy stock climb back up to $50 again?

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

Is it Time to Sell Oil Stocks?

The energy sector pullback has rattled Canadian investors because of its impact on the broader economy, but it might be…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Oil Stocks in Canada: Are They Still Good Buys?

Oil stocks experienced a rout last week, but the underlying supply-demand imbalance makes them strong buys, nonetheless.

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Growth Stocks up +30% in 2022

These three growth stocks are up over 30% in 2022 alone but have come down in the last few weeks…

Read more »

Oil pumps against sunset
Energy Stocks

2 Energy Stocks That Jumped Over 60% This Year

Consider investing in these two energy stocks amid the recent pullback after putting up stellar gains earlier this year.

Read more »