Investors: Should You Buy Pembina Pipeline Stock, or Royal Bank Stock?

These two dividend stocks have offered investors a long history of payments, but what about the future? Which comes out on top?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 23, 2024 8:00 pm EDT

Banks and energy stocks have long been the dividend darlings of investors, and it’s easy to see why. Take Canadian banks, for example. These have been paying out dividends for over a century, with an average yield often hovering around a solid 4%. Energy stocks aren’t far behind, offering juicy yields that frequently top 5%, thanks to their cash-cow infrastructure. These sectors thrive on consistent cash flow, which means they keep the dividend cheques rolling even when the economy hits a speed bump. So, if you’re looking for reliable income, banks and energy stocks are like the old friends you can always count on.

Indeed, Royal Bank of Canada (TSX: RY) and Pembina Pipeline (TSX: PPL) are like the dynamic duo of the TSX, offering investors a one-two punch of stability and growth. Royal Bank, the largest bank in Canada, has a rock-solid history of dividend payments, with a yield currently around 3.7% and a track record of increasing dividends for over a decade. Meanwhile, Pembina Pipeline is no slouch either, delivering a hefty dividend yield of about 5.2%, backed by a steady stream of cash from its energy infrastructure assets. Both companies are leaders in their respective sectors, making them strong contenders for anyone looking to add a bit of Canadian muscle to their portfolio!

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Royal Bank

Royal Bank has been a pillar of stability and growth for decades, making it a go-to for investors looking for reliable returns. Historically, RY has weathered economic downturns with resilience, offering a robust dividend yield and consistent earnings growth. However, like any financial institution, it’s not without its risks. In the past, the bank has faced challenges from economic recessions and regulatory changes, but its diversified business model has helped it bounce back time and time again.

Currently, RY continues to benefit from its strong market position in Canada and expanding global presence, particularly after its acquisition of HSBC Canada. This expansion brings new opportunities but also integration risks, which could affect short-term performance. Looking to the future, RY’s commitment to digital innovation and solid balance sheet position it well to navigate the evolving financial landscape. While there are risks, such as potential economic downturns or increased regulation, the bank’s long-term growth potential and reliable dividend make it an attractive option for investors. Especially those seeking a mix of stability and growth.

Pembina

Pembina has long been a solid player in the energy infrastructure sector, boasting a history of steady growth and strong dividends. In the past, PPL benefited from its strategic positioning in the Western Canadian Sedimentary Basin, providing essential services to the oil and gas industry. However, it faced challenges like fluctuating commodity prices and environmental concerns, which impacted its stock performance. Despite these hurdles, Pembina’s diversified portfolio and reliable cash flow made it a favourite among income-focused investors.

Currently, Pembina is reaping the rewards of its recent acquisitions and expansions, like the Cedar LNG project and the Aux Sable acquisition. These moves are expected to drive future growth, but they also come with integration and execution risks. Looking ahead, Pembina’s continued focus on expanding its infrastructure and tapping into global markets presents a promising opportunity for long-term investors. The risks, including potential regulatory changes and market volatility, are present. However, Pembina’s strong balance sheet and commitment to sustainable growth make it an attractive option for those seeking both income and capital appreciation.

Bottom line

If you’re eyeing long-term stability and solid dividends, Royal Bank might edge out Pembina Pipeline as the better pick. Royal Bank has a track record of weathering economic ups and downs with consistent earnings and dividends, making it a go-to for reliable returns. Pembina, on the other hand, offers strong growth potential with its recent expansions, but it also carries a bit more risk given the energy sector’s volatility. So, if you’re all about steady, dependable growth, Royal Bank could be your safer bet. While Pembina is for those who don’t mind a little extra excitement in their portfolio.