Investing in pipeline companies offers exposure to the energy sector, which is known for its volatility and cyclical nature. The vast network of pipelines in North America enables these companies to efficiently transport natural gas to power various industrial facilities, households, and businesses.
In Canada, there are midstream companies that specialize in owning and operating pipelines and related energy infrastructure. These companies typically earn fixed fees for allowing energy producers to utilize their pipeline systems, making them less susceptible to fluctuations in commodity prices.
Pipeline operators generally generate a significant portion of their cash flows from long-term contracts indexed to inflation. This business model ensures a steady cash flow regardless of changes in the business cycle.
Considering these factors, it may be worthwhile for Canadian investors to explore investment opportunities in pipeline stocks like Enbridge and Pembina Pipeline.
Enbridge, for instance, operates one of the largest crude oil and liquids transportation systems globally, handling a significant portion of oil and natural gas production in North America. The company also has investments in clean energy solutions, such as offshore wind energy facilities in Europe.
With a track record of consistent earnings, Enbridge provides shareholders with an annual dividend of $3.66 per share, translating to a forward yield of 7.5%. The company has a history of increasing payouts by an average of 10% annually since 1995, making it an attractive option for income-seeking investors.
Pembina Pipeline, on the other hand, offers an annual dividend of $2.76 per share, with a yield of 5.4%. The company recently completed acquisitions that align with its growth strategy and expects to see an increase in EBITDA by the end of 2024.
Both Enbridge and Pembina stocks are considered undervalued based on their forward earnings multiples, presenting potential opportunities for investors to benefit from dividends and potential capital appreciation. Analysts also project positive growth prospects for both companies in the near term.
