The Top Canadian Energy Dividend Company

We all know companies in the Energy sector are taking a beating due to the oil price plummet. Many energy companies pay a dividend. Yet, on one extreme some companies slashed their dividends, such as Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) and on the other side of the extreme, there are some that have continued raising their dividends.

Here is the list of Energy companies that have not cut (some even raised) their dividends in the past year: Imperial Oil Limited (TSX:IMO)(NYSE:IMO), Suncor Energy Inc. (TSX:SU)(NYSE:SU), Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), Inter Pipeline Ltd (TSX:IPL), Pason Systems Inc. (TSX:PSI), and Ensign Energy Services Inc (TSX:ESI).

Enbridge is the Best

If I could only buy one company from the list, it’d be Enbridge. Why? Enbridge generates predictable and growing cash flow that supports its growing dividend. That’s why it was able to hike its dividend by 33% in the first quarter of 2015.

From 2016 to 2018, the company’s guidance is to increase its dividends by a compound annual growth rate of 14-16%, with projected earnings growth of 10-12% and some payout ratio expansion.

Under $56, Enbridge yields 3.3%. Typically, I try to catch its shares between 3.3 – 3.5%. Assuming the company increases the dividend by 14% next year, that would imply a yield-on-cost of 3.8% in 2016. As a result, I believe it is priced at a value today.

Generally, Pipelines are doing better

The other two pipelines are doing well compared to other energy companies as well. In the first quarter of 2015, TransCanada increased dividends by 8%, while Inter Pipeline raised its dividends by 14% in the fourth quarter of 2014.

Other Possibilities?

If you are looking for other possibilities, Suncor Energy and Canadian Natural Resources both increased their dividends in 2015 by 3.6% and 2.2% respectively.

Conclusion

I believe the pipeline industry offers the safest dividends in the energy sector, since the safest dividend is the one that was last raised. Out of the 3 pipelines mentioned, I believe Enbridge is the best choice.

It is the best dividend opportunity in the Energy sector for both a safe and growing dividend and capital gains. However, the prolonged low oil prices will still affect it. So, dollar-cost averaging into a position at favorable yields north of 3.3% is a prudent way to invest.

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Disclosure: At the time of writing, I am long CVE, SU, ENB, and IPL.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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2 thoughts on “The Top Canadian Energy Dividend Company

  1. Subhash

    I think your comments of Enbridge Inc (TSX:ENB)(NYSE:ENB) )and Inter Pipeline Ltd (TSX:IPL) are somewhat outdated. The prices oh these stocks dropped significantly and are quite cheap to buy now. In fact, I did a few purchases recently. I follow yur articles in Seeking Alpha and would comment that you are one othe few Canadian Stock Advisors who provide excellent useable information. Keep up the great work.

  2. Passive Income Earner Post author

    Subhash, thanks for your comment. This article was published in August. So, some of what’s stated here is old news. I just published a new article about dividend stocks on sale that so happens include Enbridge. You can check it out here: http://www.passive-income-earner.com/christmas-shopping-for-dividend-stocks/

    Thanks for your kind compliment, but I’m not qualified to be a Canadian stock advisor, but I do write about my experience with stocks, and my opinions about them.

    Cheers,
    PIE

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