The best dividend play at any given time has less to do with how large the upfront yield is and far more to do with the company’s ability not only to sustain a respectable payout, but to keep growing it each and every year at a rate that’s generous. Indeed, it’s no easy task to balance a fairly hefty dividend commitment with consistency in dividend growth. You need higher earnings growth, which often accompanies a good amount of capital appreciation as well.
Of course, the more that goes to dividends means less is returned to the pockets of shareholders. While there are hundreds of stocks that have struggled to achieve a perfect balance, I do think that there are a few Canadian names that global investors might wish to keep tabs on for their unique ability to keep spoiling investors with dividends while also delivering on growth promises. As you may have probably guessed, the names I speak of are the pipeline plays.
The Canadians ones are rich with income, dividend growth, and, in recent years, appreciation. And while the industry has fallen into a bit of a rut in recent months, I think it’s too soon to give up on the midstream heroes, especially as they look to get back on their feet again. Whether you’re looking for a crude or natural gas transport play, I think there’s a lot of reason to give Canada’s high-yield market darlings a closer look while they’re still in the penalty box.
Image source: Getty Images
TC Energy
Shares of Enbridge (TSX: ENB) look like a compelling value after enduring a 16% correction, but, in my view, TC Energy (TSX: TRP) might be the more overlooked bet for investors who are willing to settle for a slightly smaller dividend yield (4.1% instead of Enbridge’s 5.8%). The focus on natural gas is a major reason why TC Energy could stand really tall as AI-driven demand for more power is expected to increase over time.
While the technical picture isn’t great for shares of TC Energy, I do think that investors shouldn’t underestimate where gas demand could go over the next three to five years as the AI boom progresses. Indeed, management is looking to “generational demand” as the firm continues investing a good amount in the province of Alberta.
Though there’s no telling how the latest industry-wide drop will end (shares of TRP are off nearly 13% from their July highs), I must say that the risk/reward here is close to the most enticing it has been in some number of years.
The stock goes for 24.2 times trailing price-to-earnings (P/E), which is not a bad price to pay for a firm that stands to feel the tailwind from an AI-driven boom in natural gas. What’s most exciting is how much the dividend could grow over the next decade as the firm invests wisely to expand while also trimming debt and paying investors for their patience.
While untimely, I do think watching the name closely or nibbling on the way down could be the way to go for investors content with steady appreciation and payouts, rather than a shot at quick gains.
