Industry Pullback: Buying Opportunities In Dividend Growth Stocks

This article first appeared in the Seeking Alpha Marketplace service DGI Across North America.

Six dividend growth stocks from the energy infrastructure space are discussed. They offer yields of 4.6-7.5% and double-digit price appreciation potential in the near term.

The energy infrastructure stocks have pulled back meaningfully due more or less to the lower commodity prices. These stocks are safer and less volatile than energy stocks, which have direct exposure to lower-priced commodities.

For income investors, it is a good opportunity to consider the energy infrastructure stocks, which tend to grow their dividends over time.

oil refinery

Enbridge Inc. (TSX:ENB)(NYSE:ENB)

Enbridge is the biggest company with the largest scale. Here’s how the company looks like after combining with Spectra Energy Corp. If you’re looking for safety and strong dividend growth, Enbridge is your stock.

Enbridge is ~15% below its 52-week high of ~C$59 per share and ~1.8% higher than its 52-week low of C$49.20 per share.

Enbridge is a diversified business. It produces and processes natural gas, has a complex pipeline system that transports liquids and gas across North America, and generates power with wind, solar, and geothermal facilities.

The company has increased its dividend per share (“DPS”) for 21 consecutive years. In the last 20 years, it has compounded its DPS by 11.2% per year.

Source: Enbridge website

Through 2024, Enbridge expects to hike its DPS by 10-12% per year. Currently, it’s a good time to buy some shares at an attractive yield of ~4.9%.

The street consensus at Thomson Reuters [TSX:TRI](NYSE:TRI) has a mean 12-month target of C$62.30 on the stock, which represents ~24% upside potential in the near term.

F.A.S.T. Graphs also show that Enbridge is undervalued as a multi-year investment as its cash flow per share growth is estimated to grow at a double-digit rate in 2018 and 2019.

Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA)

Pembina is a smaller pipeline company. The stock has pulled back such that it sits roughly in the middle of its 52-week low and high.

Interestingly, the stock has performed markedly better than Enbridge since the end of 2015. (It has delivered annualized returns of 25% compared to Enbridge’s 9.8%.)

oil pipeline

The pending Veresen acquisition should add more growth to Pembina. Since 2012, Pembina has increased its DPS every year.

In the last three years, it has increased its DPS by ~5%. It intends to increase its monthly dividend from $0.17 to $0.18 per share (~5.8% growth) once the merger closes.

The street consensus at Reuters has a mean 12-month target of C$50.10 on the stock, which represents ~24% upside potential in the near term.

As a multi-year investment, Pembina is a compelling investment today.

Altagas Ltd. (TSX:ALA)

Altagas is an energy infrastructure company that has been especially depressed.

It’s making a big acquisition — WGL Holdings (WGL), which is primarily a quality, regulated-gas utility that generates stable cash flows. Altagas has to raise lots of capital for it, and the market doesn’t like the increased uncertainty.

Adding that the energy infrastructure industry is generally weak, the stock has been more depressed than the others. The stock trades near its 52-week low and is so far being supported by its 400-day simple moving average. It currently offers a 7.6% yield!

The company has increased its DPS every year since it transformed from an income trust to a corporation in 2010. Management is planning to hike its dividend in Q4, which would add support for the shares.

Reuters has a mean 12-month target of C$34.10 on the stock, which represents ~23% upside near-term potential.

Keyera Corp. (TSX:KEY)

Keyera stock has held up strongly among the discussed energy infrastructure companies. The stock has essentially gone sideways since late 2014 with strong support at the ~C$35 level.

Source: Google Finance
Reuters has a mean 12-month target of C$44.30 on the stock, which represents ~22% upside near-term potential.

Now is a good time to pick up some Keyera for a trade or an investment for the next few years, or you could see if you can pick up some shares at the ~C$35 level. It yields ~4.6% currently.

Keyera has increased its DPS every year since 2011. Its 5-year dividend growth rate is 9.9%. Its monthly dividend is ~5.7% higher than it was a year ago.

TransCanada Corporation (TSX:TRP)(NYSE:TRP)

TransCanada stock has held up the best among the discussed energy infrastructure companies. The stock has gone roughly sideways with a nudge to the upside since mid-2016.

Reuters has a mean 12-month target of C$72 on the stock, which represents ~14% upside near-term potential.

TransCanada has increased its DPS for 16 consecutive years. Its 5-year dividend growth rate is 6.1%. Its quarterly DPS is 10.6% higher than it was a year ago. Management expects to grow its DPS by 8-10% per year through 2020.

Inter Pipeline Ltd. (TSX:IPL)

Inter Pipeline stock has pulled back +20% from its 52-week high and has shown some support at the current levels of ~C$23 per share.

Now is a good time to buy some shares and if it falls to the ~C$20 level, buy some more to average down.

I see Inter Pipeline as an income investment and a potential trade to book profits at a higher valuation when, say, commodity prices recover to higher levels.

At ~C$23.10, it offers a yield of 7%. Its monthly DPS is ~3.8% higher than it was a year ago.

Reuters has a mean 12-month target of C$29.40 on the stock, which represents ~27% upside near-term potential.

 

If the energy prices improve, Inter Pipeline should be able to trade at the ~C$26-28 level.


Investor Takeaway

The energy infrastructure stocks have generally pulled back meaningfully; it is a good time to buy some shares.

Enbridge and Pembina offers a yield of ~5% with price appreciation potential.

TransCanada and Keyera stocks have been consolidating and could be stabler investments than the others.

Altagas and Inter Pipeline are high income plays with 7+% yields and have price appreciation potential.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

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

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.

Get Exclusive Articles from me on Seeking Alpha

  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
  • Real-time updates of when I buy or sell from this portfolio.
  • Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.
Learn More