Almost all stocks decline in a bear market, but pipeline companies are doing better than most. The reason is twofold.
For starters, global demand for oil and natural gas is keeping their lines full and their pumps working at maximum capacity. There’s no indication this will end soon, even with growing talk of a recession.
Second, the high dividends paid by these companies offer attractive yields that help put a floor under their prices.
Here’s a look at the three pipeline companies we have recommended in my Income Investor newsletter.
TC Energy Corp.
- Type: Common stock (TRP-T)
- Current price: $66.97 (as of close June 21)
- Annual payout: $3.60
- Yield: 5.5 per cent
- Risk: Moderate
Comments: TC Energy 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 U.S. market. As well, TC Energy invests in a number of power generation facilities, including wind, solar, and nuclear.
The company’s first quarter results showed an improvement over 2021. Net income attributable to common shares was $358-million (36 cents per share) compared to a loss of just over $1-billion ($1.11 per share) the year before. Last year’s big loss was due in large part to write-offs relating to the cancelled Keystone XL pipeline (the company has launched legal action to reclaim some of that money). Comparable earnings were almost flat with last year at about $1.1-billion.
Comparable EBITDA was $2.39-billion, down slightly from $2.49-billion in 2021. The company said that comparable EBITDA is expected to be “modestly higher” than 2021 while earnings per share will be “consistent” with last year. It reaffirmed its five-year target of 5 per cent annual EBITDA growth through 2026.
TC Energy raised its quarterly dividend by 3.4 per cent to 90 cents a share ($3.60 a year). The stock yields 5.5 per cent at the current price.
CEO François Poirier said: “The global environment continues to be complex, representing an urgent need to develop greater energy security. Now more than ever, we understand the importance of North America’s role in securing global energy supply. By working closely with our customers, we continue to develop innovative energy solutions to move, generate and store the energy people need daily while also advancing our shared goals for sustainability.”
During the quarter, the company finalized contracts for approximately 160 MW of wind projects and 240 MW of solar projects. It also received approval from the Alberta government to move forward to the next stage of its joint venture with Pembina Pipeline to build and operate a carbon capture and storage hub. The next step is to enter into an evaluation agreement to further assess the viability of the project.
Enbridge Ltd.
- Type: Common stock (ENB-T)
- Current price: $53.59
- Annual payout: $3.44
- Yield: 6.5 per cent
- Risk: Moderate
Comments: Enbridge Inc. is a leading North American energy infrastructure company. Its core businesses include liquids pipelines, which transport approximately 30 per cent of the crude oil produced in North America; gas transmission and midstream, which transports approximately 20 per cent of the natural gas consumed in the US; and gas distribution and storage, which serves approximately 3.9 million retail customers in Ontario and Quebec. The company also has 1,766 MW of renewable power generation capacity in North America and Europe.
First quarter results saw an improvement in EBITDA over 2021 but earnings were flat. EBITDA for the period was $4.4 billion, up from $4.1 billion in the same period last year, thanks mainly to growth in the company’s liquids pipeline system.
GAAP earnings were $1.9 billion ($0.95 per share). That was the same as a year ago although on a per share basis the results were a penny higher than last year. Adjusted earnings were $1.7 billion ($0.84 per share), compared with $1.6 billion ($0.81 per share) a year ago. Distributable cash flow was $3.1 billion ($1.52 per share), compared with $2.8 billion ($1.37 per share) in 2021.
“It’s clear we are at an inflection point in global energy markets,” said CEO Al Monaco. “Energy demand continues to grow, which combined with underinvestment in new supply, is driving energy shortages and higher prices. Now, more than ever, it’s evident that all forms of energy, conventional and low carbon, are needed to meet the growing demand while ensuring society has access to affordable, reliable, secure, and cleaner energy.
“This global energy crisis further heightens the essential role that conventional energy will play for decades to come. But we also need to meet our global emissions goals across the value chain and leverage existing infrastructure to accelerate investment in low-carbon energy. “The current environment reinforces that our two-pronged strategy to advance both conventional and low-carbon energy investments is a prudent approach to ensure delivery of the energy that people need and want in their daily lives.”
In March, Enbridge raised its quarterly dividend by 3 per cent to $0.86 a share ($3.44 annually). The yield is 6.5 per cent.
Pembina Pipeline Corp.
- Type: Common stock (PPL-T)
- Current price: $46.12
- Annual payout: $2.52
- Yield: 5.6 per cent
- Risk rating: Moderate
Comments: 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.
Pembina reported record first-quarter results and the stock soared to an all-time high. Revenue was just over $3-billion, up from $2billion in the same period of 2021. Earnings came in at $481-million (81 cents per diluted share). That compared to $320-million (51 cents a share) a year ago.
Adjusted EBITDA was a record $1-billion, representing a 20-per-cent increase over the same period last year. The first quarter was positively impacted by stronger marketing results due to higher margins on natural gas liquids and crude oil sales and lower realized losses on commodity-related derivatives. Adjusted EBITDA also benefited from higher volumes in combination with higher tolls on the Peace Pipeline system; higher recoverable costs on the Horizon Pipeline related to extensive slope mitigation; contributions from the Prince Rupert Terminal coming into service in March 2021; and a higher share of profit from Veresen Midstream, due to the Hythe Developments entering service in March 2021 and higher volumes at the Dawson Assets.
Those numbers are a far cry from the dark days of 2020 when investors drove down the share price to below $28 on the expectation that the company would be forced to cut its dividend. It never did, although it is the only one of the major pipeline companies that hasn’t raised its dividend this year.
Pembina raised its 2022 adjusted EBITDA guidance range to $3.45- to $3.6-billion (previously $3.35- to $3.55-billion). Cash flow from operating activities is expected to exceed dividends and the capital investment program in 2022.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Gordon Pape