Canada’s top pipeline stocks don’t really get that much respect, given the reliability of their cash flow streams and the towering height of their dividend yields. Indeed, inflation and high rates have caused some investors to steer towards risk-free assets. Why bother risking capital when you could just settle for a 4.5%-rate security that’s free from risk?
Indeed, GICs (Guaranteed Investment Certificates) look appealing to those investors who are fed up with the market’s roller-coaster ride. That said, I still think the risk/reward scenario in some of the better-run pipeline stocks is better.
Not only will you get quite a bit more yield, but you could also be in for considerable capital appreciation over the course of many years. And the best part is valuations are looking quite decent for yield-hungry investors who wouldn’t mind adding some exposure to the midstream energy scene.
TC Energy: A pipeline stock with a yield of 7.1%
A number of pipeline stocks have taken a massive hook straight on the chin of late, with such names as TC Energy (TSX:TRP) now close to the depths not seen since the dark days of 2020. At around $52 per share, TRP stock is down, but I wouldn’t count it out as a recovery play in the back half of this year.
First, TC Energy’s stock yields a fat 7.1%. Sure, the dividend stock is still risky compared to GICs. However, I do believe investors are being well compensated for taking risks with the name at these levels.
Second, the stock trades at 34 times trailing price to earnings but much less on a forward-looking basis (below 12 times forward price-to-earnings). Indeed, it will take some time for TC Energy stock to start gravitating higher again. Fortunately, the floor of support in the $50 level looks quite strong and may just hold up for beginner investors seeking to buy on the dip.
Lastly, TC Energy has made headlines for all the wrong reasons lately. I think the pessimism is overblown, leaving TRP stock as a worthy dividend play for investors searching for opportunity in the energy space.
Enbridge: The dividend-heavy (7.21% yield) juggernaut is getting too cheap again!
Unsurprisingly, we have Enbridge (TSX:ENB), which is inching closer to bear market territory again, with shares off around 18% from their 2022 peak levels. Indeed, $48 and change seems too cheap for a pipeline with such a shareholder-friendly management team. Though past declines have been painful rollercoaster rides, I think there’s lots of value to be had in the name right here.
The 7.21% yield is undoubtedly attractive. And as shares keep falling, there’s a good chance the yield could surpass 7.5%. Of course, the dividend could find itself getting stretched again if pressures in the midstream industry mount. However, I think Enbridge is a company that’s already proven that it can keep its payout intact through the roughest of industry conditions.
The stock trades at 41.4 times trailing (around 17.1 times forward) price to earnings, making ENB stock a very bountiful contrarian investment from the front of passive income.
