Canada boasts an extensive pipeline system and pipeline operators play a crucial role in strengthening the country’s economy. If you’re a long-term, income-focused investor, Pembina Pipeline (TSX: PPL), Keyera (TSX: KEY), and South Bow Corporation (TSX: SOBO) are for keeps. You can buy these energy stocks and hold them forever.
Source: Getty Images
Transformational growth catalysts
Besides pipeline transportation, Pembina Pipeline provides terminal, storage, and rail services in key market hubs (crude oil, condensate, natural gas, and natural gas liquids, or NGLs) in Canada and the United States. The $29.96 billion company energy transportation and midstream service provider is over 70 years old.
The business is diversified and highly contracted (70% take or pay contracts). Pembina’s three infrastructure projects, Trans Mountain Expansion (2024), West Coast LNG Exports (2025 to 20208), and LPG Exports (2026 and beyond), are transformational growth catalysts. At $51.61 per share, you can partake in the hefty 5.35% dividend.
A clear pathway to growth
Keyera is a screaming buy following its impressive financial results in the fourth quarter (Q4) and full-year 2024. This $9.57 billion owns and operates Keyera Alberta Pipeline Systems or KAPS, its crown jewel. The 575-kilometre pipeline transports natural gas liquids (NGLs) and condensates.
In the three and 12 months ending December 31, 2024, net earnings rose 81% and 15% year over year to $88.9 million and $486.6 million, respectively. Its president and chief executive officer (CEO), Dean Setoguchi, said, “Keyera had an outstanding 2024, achieving record results across all three business segments. We continued to execute our strategy and deliver value to our customers by leveraging the strength of our integrated value chain.”
Setoguchi added, “We have a clear pathway to continued margin growth by filling available capacity and advancing capital-efficient growth projects. Our financial strength positions us well to allocate capital to the highest-value opportunities.” Notably, Keyera’s fee-for-service realized margin rose 9% to $970 million from a year ago, a new annual record. At $41.96 per share, the dividend offer is 4.98% (quarterly payout).
Newest operator
The newest entity in Canada’s oil pipeline business is South Bow. While the name is unfamiliar, the $7.27 billion company is a spinoff from TC Energy’s oil pipeline operations. The value proposition is the compelling growth opportunity by strengthening and expanding a strategic corridor.
South Bow aims to unlock the full potential of the corridor that connects critical western Canadian crude oil supply to key refining and high-demand markets in the U.S. Midwest and Gulf Coast. This strategic attribute will enable South Bow to maintain and capture additional market share.
The high-quality contractual framework (strong contracts with credit-worthy counterparties) is the source of stable, predictable cash flows. According to management, the pre-capitalized assets and highly executable projects could deliver long-term comparable earnings before interest, taxes, depreciation, and amortization growth of 2% to 3%.
Furthermore, dividends will be the primary means of returning capital to shareholders. On November 27, 2024, SOBO announced its inaugural quarterly dividend (US$0.50 per share). The current share price is $35.03.
Enduring business
Energy is a heavyweight sector on the TSX. While pipeline stocks like Pembina Pipeline, Keyera, and South Bow have no immunity from market downturns, the oil pipeline business will endure. A long-term investment horizon can also help ride out market fluctuations.
