Pipeline Stocks Are Heating Up: Here’s Where to Invest

Here’s why Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA) is one of the top midstream stocks to add to a long-term dividend portfolio.

| More on:
pipe metal texture inside

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

With Pembina Pipeline (TSX:PPL)(NYSE:PBA) buying out Kinder Morgan Canada, while a subsidiary of Enbridge (TSX:ENB)(NYSE:ENB) is proposing a $2.5 billion NGL infrastructure project in northeastern B.C., the pipeline space is getting interesting once again for energy investors.

In fact, the midstream space could potentially look quite different 10 years from now, with Enbridge potentially losing market share to its largest competitors. This could come to fruition if innovative ways to transport fuel out of the oil patch allow shippers to explore options beyond the Mainline system.

Pipeline stocks are garnering increased attention

Pembina has long looked like a solid buy, paying a tasty 5.05% dividend yield. The company is all set to buy Kinder Morgan Canada and the Cochin Pipeline in a multi-billion-dollar deal and has announced an increase to its dividend.

Boasting a market cap of $24.3 billion, Pembina has a solid track record, though its stock is a touch overvalued compared with the oil and gas industry average.

Selling at a discount of around 40% compared to its fair value, Enbridge stock may still be worth adding to a cost-focused portfolio.

An $87.7 billion market cap puts the midstream giant into solidly defensive territory, though investors will have to decide whether the cross-border hold-ups in its pipeline projects warrant a long-term place in a dividend portfolio.

For instance, the midstream giant needed to get approval to get its natural gas line going again after the accident in Kentucky, while the company also has had to defend its Line 5 plan in terms of the Constitution after Michigan challenged an underwater pipeline in the region.

Additionally, long-term investors have been eyeing the headlines with some suspicion of late, with the shakeup of Enbridge’s Mainline contracts system attracting no small amount of opprobrium. Shippers in this country are concerned that U.S. companies may get the lion’s share of the network’s capacity under new guidelines.

Don’t like pipeline stocks? These oil companies sell at year-long lows

Two decent oil stocks are going cheap at the moment if a pipeline play isn’t your thing right now. Vermilion Energy (TSX:VET)(NYSE:VET) and TORC Oil & Gas (TSX:TOG) are both trading at 52-week lows, with the volatile energy environment offering attractively priced assets.

The latter stock is of particular interest, as its management finds itself in a position to increase production through acquisitions. A sturdy balance sheet paired with a rich yield certainly makes for an attractive play.

Meanwhile, Vermilion is nice and cheap and pays an extremely high yield of 14.9%. Yes, you read that right: this energy stock shells out almost 15% on your investment.

What’s more, that dividend looks stable, with the international oil and gas company controlling assets that are spread across North America, Australia, and Europe, and protecting its dividends even during hard times.

The bottom line

In terms of passive income, Enbridge’s 6.8% yield should be rich enough for dividend shareholders’ palettes. However, less-contentious long-term plays may lie with the likes of Pembina, while oil and gas fans have strong choices in TORC Oil & Gas and Vermilion Energy.

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 and Kinder Morgan. Enbridge is a recommendation of Stock Advisor Canada. Pembina is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

A plant grows from coins.
Dividend Stocks

1 Top Dividend Stock to Buy in August 2022 and Hold Forever

Leon's Furniture (TSX:LNF) stock is one of many quality dividend plays that could face most upside if a recession never…

Read more »

The sun sets behind a high voltage telecom tower.
Dividend Stocks

BCE (TSX:BCE): An Impressive 5.75% Yielder

Canada’s top 5G stock deserves top billing in a stock portfolio because of its Dividend Aristocrat status and impressive 5.75%…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

Payday ringed on a calendar
Dividend Stocks

Canadian Dividend Investors: 2 ETFs That Pay Monthly Income With High Yields

Dividend ETFs often pay out monthly distributions compared to dividend stocks.

Read more »

think thought consider
Dividend Stocks

2 Stocks I Own and Will Buy More of if They Fall

Stocks tend to go up in the long run. Therefore, buying a basket of diversified stocks on dips should lead…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy for Passive Income

Blue-chip dividend stocks such as Royal Bank of Canada and Manulife Financial pay investors a tasty forward yield.

Read more »