After staying quiet in the March sell-off, Warren Buffett made its first big buy. Buffett’s Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) just purchased Dominion Energy’s (NYSE:D) natural gas transmission and storage assets for US$9.7 billion. The deal sent Berkshire Hathaway stock up 2.2% and Dominion Energy stock down 11% on Monday. Buffett is buying energy stocks, and you should buy them, too. AltaGas (TSX:ALA) is Canada’s natural gas transmission and storage company that offers similar exposure as Dominion Energy Transmission.
Why is Buffett buying Dominion Energy Transmission?
Energy stocks are the best defence against an ailing economy. You will consume electricity and natural gas, whether or not you are employed. Natural gas is an essential utility that homes and industries consume, and it is, therefore, resilient to the pandemic. Natural gas transmission companies face no direct competition. Hence, their energy rates are closely monitored by the government. They generate stable cash flow and return a portion of this cash flow to investors through dividends.
Berkshire Hathaway Energy already owns companies like Northern Natural Gas and Kern River Gas Transmission. With the addition of Dominion Energy Transmission, Berkshire Hathaway Energy will control 18% of all interstate natural gas transmission in the U.S., up from 8% at present. The company will diversify its geography by expanding its reach in several eastern and western states of the U.S.
Why should you follow Buffett?
Buffett is the most decorated value investor with more than 65 years of investing experience. He has seen many market crises and built his knowledge by making mistakes. However, he shocked the market in March by not following his advice of buying when the market is fearful, because he did not find many favourable deals. He stated that the government was quick to launch a bailout program, giving companies more access to financing. Hence, they did not reach out to large investors for funding.
Due to lack of favourable deals, Berkshire hoarded a record $137 billion in cash and patiently waited for the next big investment opportunity. Hence, its purchase of Dominion Energy Transmission comes as big news to the investing community. Many retail investors follow Buffett to benefit from his expertise in value stocks and experience in the stock market. A good alternative to Dominion Energy Transmission in the Toronto Stock Exchange is AltaGas.
AltaGas: An excellent long-term investment
AltaGas owns the energy infrastructure needed to gather, generate, process, store, and transmit natural gas and natural gas liquids to homes and businesses. The company has divided its business into two segments: Utilities and Midstream. Its Utilities business serves 1.7 million customers through its natural gas distribution utilities in the United States. This business also includes two regulated natural gas storage utilities in the U.S. and affiliated retail energy marketing that serves around 0.5 million customers. Its Midstream business includes extraction, fractionation, transmission and storage of natural gas, and NGL marketing in Western Canada.
AltaGas earns stable cash flows and pays out 64% of its cash flows as dividends. The company has a history of paying a monthly dividend for the last 10 years. The stock is currently trading slightly above $16 — a level last seen in November 2018. Its reduced price has increased its dividend yield to 6%, the highest among other utility stocks in Canada.
AtlasGas’s five-year average dividend yield stood at 7.37%. If you invest $10,000 in the stock now, you will earn over $3,500 in dividend in the next five years. It is a defence stock where you can put in your emergency savings to use.
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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends ALTAGAS LTD and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $200 calls on Berkshire Hathaway (B shares).