There are two ways to generate wealth through investing. One way is to take a contrarian approach and invest in the underdog hoping for it to grow from a seedling to a tree. The problem with this approach is, you may invest in 10 small-cap stocks, with no assurance of supernormal returns. But even if one or two stocks turn out to be the Amazon of tomorrow, prosperity can knock on your doors. Instead of leaving wealth to chance and educated guesses, you can simultaneously start building a passive income pipeline that can generate wealth slowly and steadily.
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How to build a pipeline of prosperity
To build a pipeline of passive income, consider investing in the strengths of an economy. A country’s economy depends on its geography, resources, laws and history. Canada’s economy is influenced by its rich oil and gas resources and its strategic location as the neighbour of America. Canada exports more than 99% of its oil to America through a network of pipelines.
Pipelines are the most cost-effective way of transporting oil and gas. Even though the energy industry is transitioning to renewable energy sources, the importance of pipelines remains. How? These pipelines can be modified to transmit renewable energy, making them relevant even two decades from now.
You can play on Canada’s strengths and buy two of the biggest pipeline stocks in Canada:
Both the stocks were oversold in May and were trading closer to their 52-week low. The dip came over concerns around the U.S. debt crisis. The government warned that if they are not allowed to raise more debt, they might default on interest payments on previous Treasury bills on June 5. This warning pulled down the stock market. Moreover, the Fed’s interest rate hikes pulled down consumer demand, reducing oil prices.
Amid these bears is one bull. America’s Strategic Petroleum Reserve (SPR) is at an alarmingly low level. The government plans to refill this reserve later this year, hoping the oil price remains at or below $70.
As oil and gas supply to America significantly contributes to Canada’s economy, pipeline companies’ stock prices are sensitive to commodity prices and the economic health of America. However, their dividend per share is secure as that comes from the toll money of long-term supply contracts. This toll rate is regulated.
Building a dividend portfolio with Enbridge and TC Energy
As long as Canada and the United States maintain their long history of energy trade, Enbridge and TC Energy will remain stocks of choice. Enbridge has grown its dividend at a compound annual growth rate (CAGR) of 10% in the last 28 years. TC Energy has grown its dividend at a CAGR of 7% in 23 years.
If you’d invested $10,000 each in Enbridge ($7.17 per share) and TC Energy ($12.5 per share) in January 2000, here’s what your earnings would look like in the below table:
| ENB | TRP | |
| Invested in January 2000 | $10,000 | $10,000 |
| No. of Shares | 1,390 | 800 |
| Accumulated Dividend | $47,915 | $36,272 |
| Portfolio Value | $69,500 | $44,184 |
| Total Return as on June 2023 | $117,414 | $80,456 |
How do pipeline stocks build wealth in 23 years?
The two pipeline stocks grew their businesses one pipeline at a time and grew your earnings with small increases every year. In those 23 years, the dividends and share price growth grew your portfolio at 10.5% CAGR.
Your one-time $20,000 investment could have earned you $7,910 in annual dividends.
The two stocks may not be able to replicate similar growth as the oil industry has reached its peak. But they still can generate wealth over the next 20 years.
These are the stocks you can buy and forget till you retire. Now is a good time to invest $10,000 in each and buy 181 shares of TC Energy and 199 shares of Enbridge. You can forget these stocks for the next 20 years. Keep investing in other growth stocks while the two pipeline stocks build your pipeline of wealth in the background.
