Canadian energy infrastructure companies provide a range of gathering, transportation, processing, fractionation, storage and marketing services to the oil and gas industry. In general they are not engaged in exploration and production, they earn fees for the services they provide without taking ownership of the physical commodities they transport and store. They focus on providing essential services to producers by giving them access to markets across North America.
Canadian pipeline network
Potential Benefits of Investing in Energy Infrastructure Companies
- Growth and Income
- Stable Cash Flows
- Inflation Hedge (growing distributions faster than inflation)
- Tax Advantaged Yields
Canadian pipeline and midstream stocks:
|
Company |
Ticker & Price |
Yield 2013E |
Veresen Inc. |
VSN.TO $19.26 [+0.03] |
7.9% |
Inter Pipeline Fund |
IPL-UN.TO $23.97 [0.00] |
4.4% |
Pembina Pipeline Corp. |
PPL.TO $46.26 [+0.52] |
5.5% |
AltaGas Ltd. |
ALA.TO $48.77 [+0.42] |
4.1% |
TransCanada Corp. |
TRP.TO $54.845 [+0.565] |
3.6% |
Keyera Corp. |
KEY.TO $79.90 [+1.46] |
4.0% |
Enbridge Inc. |
ENB.TO $53.37 [+0.71] |
2.5% |
Investor Checklist
In the past months, investors have been pouring money into high dividend yield stocks pushing valuations to higher multiples. As you proceed with your due diligence consider the following points:
Do not be blinded by yield, take the time to study the fundamental valuation differences among the companies.
Pay special attention to the tax pools that are carried by the new corporations as they convert from the trust structure.
Ask yourself: are you undervaluing growth when you choose a high payout ratio relative to a low payout ratio?
A company with a relatively low payout ratio has more free cash to reinvest in the business which gives them the opportunity to grow and boost dividends over time. In the long run, this strategy creates more value instead of paying out 100% of free cash.
Are you looking for low but growing dividends or high dividends with stagnating growth?
Finally, your job is to identify the company that you think will continue to build on its strong track record with a full slate of potential investment opportunities while maintaining a reliable business model.
Good luck!
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the fore-mentioned securities. If you find the list incomplete or any errors in the data please do not hesitate to contact us using the appropriate form or by leaving a comment.
[...] The list might not be exhaustive but it should give you a base to start your due diligence. On a side note, another indirect and safer way of getting exposure to the energy sector is to invest in pipeline and midstream companies. [...]
[...] transition into 2011. There are other sectors that stand to benefit as well such as Utilities and Pipelines. I chose to ignore precious metals as the level of risk is higher and because the sector is lacking [...]