If you’re an income investor looking for a steady (and growing) source of dividends, I think you’re doing your portfolio a huge disservice by neglecting the pipeline plays, especially at today’s modest valuations. In prior pieces, I also remarked on the new wave of momentum hitting some of the midstream energy plays.
And while many of the yields are on the lower end of the five-year historical range, I still find the payouts to be bountiful as industry dynamics shift into high gear. As a source of capital gains and dividend growth, the following pipeline powerhouses look worth picking up this August, even if you’re a tad nervous about what September could have in store for broad markets.
Who knows? The Fed chairman may finally provide the interest rate cut that Donald Trump has been calling for in recent months. A larger-than-expected one may bring forth a prosperous September that helps propel the financial markets to even higher highs.
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High yields and relative stability
With that, I think the risk of foregoing still-attractive yields on today’s slate of pipeline stocks should be on the minds of investors who may be overly concerned about the risk of downside in the event of a swift correction. If you’re looking for a long-term holding (think the next five to eight years or more), I think timing your entry by trying to avoid a correction isn’t the best idea in the world.
As you sit on the sidelines, you won’t be collecting that fat quarterly dividend, and you may ultimately have to pay a higher price for the same stock in three months from now. Either way, I think it’s time to warm up to the Canadian pipelines. And in this piece, I’ll share two top picks to play the space as we enter the latter part of the summer season.
Enbridge
No surprises here. Enbridge (TSX: ENB) is the industry leader that’s proven itself to income investors. As the stock makes new highs, I’d be inclined to stick with the name, especially considering its potential to clock in earnings numbers that are on the higher end of the full-year guide. Indeed, management has not only spoiled investors with frequent annual dividend hikes, but it has really raised the bar on its recent quarterly results.
As the firm continues investing in its liquid and gas pipelines, investors should expect more of the same: top-tier dividend growth year after year. As AI drives energy demand (think gas), I think the broad pipeline scene could get a continued boost.
Personally, I view ENB stock as one of the must-own Canadian names out there for passive income investors. At 21.7 times forward price-to-earnings (P/E), the name isn’t expensive yet. As investors realize the earnings growth potential, I wouldn’t be surprised to see more multiple expansion from the name.
TC Energy
TC Energy (TSX: TRP) is another great energy stock that’s been performing well in the past two years, now up 57% over the timespan. More recently, however, shares have consolidated in the mid-$60s to the low-$70s. As the company looks to make strategic bets in the U.S., I’d not sleep on the firm’s ability to drive earnings higher over the long term.
The dividend isn’t huge, currently sitting at 4.9%, but you’re getting great management and a lower price of admission than Enbridge. TRP shares currently trade at 17.2 times trailing P/E, which is way too cheap for a firm that also stands to profit from growing demand for energy and, with that, energy transportation services.
