Tag Archives: TSX:ALA

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.

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Altagas Ltd. yields 6.7%. Is It a Buy, Hold, or Sell?

AltaGas Ltd. (TSX:ALA) is expected to acquire WGL Holdings, Inc. (NYSE:WGL) by the end of the second quarter of 2018. AltaGas shares reacted by declining 6.4% and the stock now yields 6.7%.

Should you buy, hold, or sell AltaGas? What kind of returns can you expect from an investment today?

The acquisition still require approvals from WGL shareholders, and some regulatory and governmental bodies before it can be closed.

Why is WGL Holdings a fitting acquisition for AltaGas?

WGL is a holding company with almost 170 years of history and is awarded a high S&P credit rating of A+. Primarily, it consists of Washington Gas and Hampshire Gas, which are regulated gas utilities that represent roughly 77% of WGL’s assets.

WGL will immediately double AltaGas’s rate base and triple its customers in its utility segment and increase its gross capacity to about 1,900 MW for its power segment.

Additionally, WGL provides about C$925 million of investment opportunities in the midstream segment, on top of the C$1.2 billion AltaGas originally planned, through 2019, totaling C$2.1 billion of capital investments.

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Should You Buy Altagas Ltd. For Its 6% Yield?

Altagas Ltd. (TSX:ALA) is not just a pipeline company. It also has strong utility and power businesses. With its FFO per unit expected to grow this year, its 6% yield should be safe with a payout ratio of below 60%. Priced at under $33, Altagas is priced at a margin of safety of 11-18%. Project opportunities exist through 2020 across all 3 of its businesses. In addition to the cash flow generated from existing assets, new projects going online will also drive growth.

Altagas Ltd.: The business

40% of Altagas’s EBITDA comes from its contracted power operations, 35% comes from its utilities, and 25% comes from its contracted midstream operations. In 2015, 91% of its EBITDA was investment grade, of which 51% was in the A category and 40% was in the BBB category.

Altagas transacts about 2 Bcf/d of natural gas, including processing and moving it to the key markets of North America and Asia. Secondly, the company has the capacity to generate 2,041 MW of power. Lastly, Altagas operates 5 utilities that serve natural gas to more than 560,000 customers (22% in Canada and 78% in the U.S.).

Concerns

Investors are probably worried about its midstream operations because of low natural gas prices. However, only 4% of its midstream EBITDA (equating to <1% of total EBITDA) is exposed to commodities. That is a low exposure compared to the industry average of 17%. Further, 72% of its gas portfolio is with investment grade counterparties. Read More