Great Canadian Dividend Buys: Large-Cap Pipelines

Exploring 3 large-cap Canadian pipelines that have continued to maintain and increase their dividends since oil prices plummeted. Which of Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), or Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA) pays out the safest dividend of the group? Which company has the best dividend prospects? Should investors buy these Canadian pipeline companies now or wait?

Kinder Morgan Inc (NYSE:KMI) got a lot of attention when it slashed its dividend by 75%. At the same time, its share price has fallen over 60% from more than $40 to under $16. Yet, strong Canadian energy infrastructure leaders such as Enbridge Inc and TransCanada Corporation have not only maintained but continued to grow their dividends. At the same time, they have also been sold off due to lower oil prices.

  • Enbridge increased its dividend by 14% this year and it would be its 21st consecutive year increase.
  • TransCanada should be announcing its dividend hike for this year by the end of March, which would be its 16th consecutive year increase.
  • Pembina hiked its dividend by 5.2% in May; it has increased it for 4 consecutive years.

Are Their Dividends Sustainable?

Enbridge, TransCanada, and Pembina Pipeline are only more attractive than a year ago if they can maintain healthy dividends. Can they?

Using consensus analyst estimated cash flows and earnings per share for the fiscal year 2016, it is determined that Enbridge and TransCanada pay out safer dividends than Pembina. Additionally, Enbridge targets to grow its dividend at a CAGR of 14-16% through 2019 while TransCanada targets to grow its dividend by 8-10% per year through 2020.

At closing of February 8, on the Toronto Stock Exchange:

  • Enbridge yields 4.6% at C$46.40 per share.
  • TransCanada yields 4.3% at C$48.60 per share.
  • Pembina yields 6% at C$30.70 per share.

On the New York Stock Exchange:

  • Enbridge yields 4.8% at US$33.30 per share.
  • TransCanada yields 4.3% at US$34.90 per share.
  • Pembina yields 5.9% at US$22.10 per share.

With the strongest S&P credit rating of A- in the group, TransCanada is viewed as the safest investment. It also has lower debt levels than Enbridge. On the other hand, Enbridge is viewed as a higher growth investment because it takes on a higher percentage of debt to fuel growth.

This is primarily an excerpt from my Seeking Alpha article: Great Canadian Dividend Buys: Large-Cap Pipelines with some updates.

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Disclosure: At the time of writing, I’m long TSX:ENB and TSX:TRP.

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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