With the ongoing Russia-Ukraine war, global oil supplies are still in turmoil. Under such circumstances, oil pipeline companies have become even more important, as governments focus on shoring up their domestic energy supply chains. Additionally, as demand increases over time, pipeline operators stand to benefit from continued growth, providing investors with excellent dividend income and total-return potential.
But does that mean investors can bet on any energy stock? Not really. It’s still true that plenty of energy producers and pipeline companies are heavily burdened with debt. In this rising-rate environment, that’s not a great thing.
That said, there’s reason to believe the following two pipeline stocks are worth investing in now. Here’s why.
Enbridge
Enbridge (TSX:ENB), along with its subsidiaries, is one of Canada’s biggest energy infrastructure companies. It operates through five segments: Midstream and Gas Transmission, Liquids Pipelines, Gas Distribution and Storage, Renewable Power Generation, and Energy Services.
According to the company’s earnings report put forward in June, Enbridge has significantly reduced its shipping charges for transporting crude oil via its Mainline system. Company sources say that this new tariff will reduce heavy crude transportation costs from the oil hubs in Hardisty, Alberta, to the terminals in Flanagan by 12%, eventually reaching US$28.80/cm.
This move may initially reduce revenue in the Mainline system, but it will triple the transportation capacity to 590,000 barrels. It will also connect the Alberta oil sands to the Asian market, thus scaling the organization’s business in the long run.
Additionally, it’s important to note that Enbridge is a bond-like investment many view as a proxy for fixed income. The stock’s 7.4% dividend yield is high (perhaps too high for many investors), but is sustainable, assuming growth continues as planned. Those seeking to match the long-term returns of the market can do so, if one believes that Enbridge’s dividend is secure. I do.
TC Energy
TC Energy (TSX:TRP) is a North American energy organization based in Calgary, Alberta. It operates via five segments: U.S. Natural Gas Pipelines, Canadian Natural Gas Pipelines, Mexico Natural Gas Pipelines, Power and Energy Solutions, and Liquids Pipelines.
TC Energy recently received approval from U.S. energy regulators to start operating its North Baja natural gas pipeline expansion in California and Arizona. The pipeline’s 0.495-billion cubic feet per day (bcfd) extended capacity will enable TC Energy to supply more natural gas to Mexico. This expansion will provide meaningful cash flow growth, supporting the company’s financial outlook for the years to come.
Additionally, this expansion will allow the company to transport natural gas to Sempra Energy’s Costa Azul. It is a U.S.-owned export plant that will have a 0.43 bcfd capacity for converting natural gas into LNG once it begins operation around mid-2025.
Moreover, for the previous quarter, TC will be paying a dividend of $0.93 per share. This amounts to a dividend yield of 7.1%. Like Enbridge, this yield is high, but for those looking for a pipeline operator with a relatively strong balance sheet and reasonable growth prospects, TC Energy may be the better pick of the two.
