The dream of a game-changing link from Alberta’s oil fields to the US Gulf Coast were wiped out along with the Keystone XL, recalls Gordon Pape, editor of The Income Investor.
A plan to link Alberta oil with tidewater in northern British Columbia, was derailed by an alliance of environmentalists and indigenous communities. Even long-established pipelines are under siege.
With all these problems, you’d think the pipeline industry would be struggling to stay afloat. Not at all — in fact, it’s one of the best places for income investors to put their money these days. Pipeline companies offer a combination of stability, above average yields, and steady growth.
Enbridge Ltd. (ENB), which recently reported third-quarter results, is currently paying a quarterly dividend of $0.86 a share ($3.44 a year) and that’s expected to rise by at least 5% in February. The yield was recently 6.35%.
How does Enbridge manage to grow its business in the face of all the anti-pipeline opposition? Acquisitions, a shift to green energy projects, and below-the-radar pipeline construction all play a role.
Recently, the company announced it has purchased US renewable project developer, Tri Global Energy, for US$270 million in cash and assumed debt plus up to US$50 million of contingent payments, based on the completion of projects now underway. Tri Global is the third largest onshore wind developer in the US, with a portfolio of wind and solar projects of over seven gigawatts.
The company is also spending $3.6 billion on an expansion of the T-South section of the BC Pipeline System, which will increase capacity by 300 million cubic feet of gas per day.
Enbridge reaffirmed its 2022 financial guidance, which includes adjusted EBITDA between $15-$15.6 billion and distributable cash flow per share between $5.20 and $5.50.
Pembina Pipeline (PBA) recently boosted its monthly dividend by 3.5%, to $0.2175 to yield 5.69%. The company’s stock was under selling pressure during the pandemic as investors were expecting a dividend cut. It never happened, as management vowed to protect the payout.
Pembina owns and operates an integrated system of pipelines that transport various products derived from natural gas and hydrocarbon liquids produced primarily in western Canada. The company also owns and operates gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business.
Like Enbridge, Pembina had a strong third quarter. Revenue was almost $2.8 billion, up from $2.1 billion in the same period of 2021. Earnings were $1.8 billion ($3.23 per diluted share), compared to $588 million ($1.01 per share) a year ago. However, its important to note that this year’s results i
The company had previously announced it was merging its Western Canadian natural gas processing assets with KKR to create a new joint venture entity. The value of the combined entity will total $11.4 billion, of which PPL will own 60%. Adjusted third quarter EBITDA was $967 million, beating the consensus estimate of $883 million.
TC Energy (TRP) is paying $0.90 per quarter ($3.60 a year) to yield 6% annually. It will likely raise its payout in the spring. The company owns and operates 93,300 km of natural gas pipelines and 653 billion cubic feet of storage in Canada, the US, and Mexico.
It also has a 4,900 km network of oil pipelines, which supply Alberta crude to the US market. As well, TC Energy invests in a number of power generation facilities, including wind, solar, and nuclear.
The company had not reported third quarter results at press time. Second quarter net income was $889 million ($0.90 a share), down from $975 million ($1 per share) the year before. But for the first half of fiscal 2022, TRP reported earnings of $1.2 billion ($1.27 a share) compared to a loss of $82 million (-$0.08 per share) the year before. Last year’s first quarter included a $2.2 billion impairment charge related to the cancellation of Keystone XL.
Overall, the price of these three pipeline stocks has dropped in recent months in the face of rising interest rates. That’s to be expected: as yields on safe government bonds rise, higher risk stock yields are pushed up to compensate, which translates into share price declines.
Income investors should not be overly concerned by these market fluctuations but focus instead on the quality of their holdings and the stability of the dividends.