A sensible way to capture some of the price action in the volatile and cyclic energy sector would be to invest in pipeline companies. A couple of midstream companies in Canada are top pipeline operators with the impressive energy infrastructure needed to propel our continent toward true energy independence over the long term. Such companies continue to be a focal point for many long-term investors, for good reason.
Here are two of the top pipeline operators I think investors may want to consider in this current market, as defence dividend stocks that could be worth buying in what could be an increasingly volatile market moving forward.
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Enbridge
Enbridge (TSX:ENB) is an energy distribution and transportation company that operates with the support of five different business sectors. The five business sectors are gas transmission and midstream, renewable power generation, liquid pipelines, energy services, and gas storage and distribution.
Enbridge released its last quarterly results on August 2, which marginally beat consensus revenue and earnings estimates and led to a rather impressive surge in the company’s stock price. With revenue growth of more than 5% on a year-over-year basis, there’s a lot to like about Enbridge’s relative pricing power in a sector that’s otherwise seen little revenue growth in recent years.
That said, as Enbridge’s stock chart above shows, this company has continued to be a top-performing bond proxy. With a current dividend yield of more than 6.6%, there’s a lot to like about Enbridge’s distribution, particularly if revenue growth can flow through to cash flow growth over time and help the company reduce the debt on its balance sheet.
In recent years, the company has done a good job in reducing its leverage, and continues to be among my top dividend picks due mainly to its impressive current yield. While many investors have bet on dividend cuts from this pipeline operator for some time, they haven’t come. In the meantime, long-term investors who have stuck with Enbridge have benefited not only from its high yield, but its impressive capital returns as well in recent years.
TC Energy
TC Energy (TSX:TRP) is another energy infrastructure company that’s been on a roll lately. Like Enbridge, the company’s stock price has shot higher recently as investors bet on continued growth from the pipeline operator, which also provides exposure to storage facilities and power generation plants.
TC Energy has recently begun to increase its investments in green energy projects, in addition to a number of other pipeline assets, furthering its network of laid pipe in Western Canada. The company’s recent partnership with indigenous-owned groups in a 25,000-kilometre highly integrated network of natural gas infrastructure assets is the latest deal that has investors bullish on its growth prospects moving forward.
Few projects have been approved in recent years, as climate change concerns have picked up. But TC Energy’s focus on providing energy for today (and a plan for tomorrow) could make this pipeline operator one that long-term investors continue to buy into.
The company’s recent Q2 results were strong, with earnings per share rising to $1 billion, valuing the stock at roughly 14 times forward earnings. With a 6% dividend yield, this is another bond proxy I think is worth considering here.
