3 Pipeline Stocks With Dividends Above 4.4%

Want to tap into the magic of pipeline stocks? Find out why Enbridge Inc. (TSX:ENB)(NYSE:ENB) and two other picks are your best bets.

| More on:

Want to retire rich? Want to side-step the next recession? What to get regular cash income simply for owning a stock? All of this is possible with pipeline stocks.

There are several factors that make pipeline stocks the perfect fit for nearly every investor.

First, they’re experiencing secular growth, which means that demand for their services continues to mount year after year. With new drilling technologies, fossil fuel production in Canada and across North America is expected to surge until at least 2030. All that oil and natural gas needs somewhere to go, and pipelines are the solution.

Second, pipelines are recession-proof. Due to surging demand, these companies have impressive pricing power, especially considering there are few alternatives to their networks.

Pricing power has translated into a low-risk business model, where customers are locked into multi-year contracts, sometimes ranging up to a decade in length.

Most important, pipeline contracts are largely based on volumes, not commodity prices. If oil prices plummet, pipeline profits often remain steady. That’s an advantage few competitors possess.

Finally, pipelines generate gobs of excess cash. Ongoing maintenance costs are only a small fraction of the initial construction cost, which means pipelines produce huge amounts of free cash flow once they’re put into service.

Most companies produce more cash than they’re able to reinvest, resulting in big dividends for shareholders. These dividends can surpass 7% per year.

Convinced that pipelines are right for you? Here are your best options today.

Bigger is better

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is the largest pipeline operator in North America. This comes with some unique advantages, the biggest of which is scale.

Customers can use Enbridge’s network to ship energy from British Columbia all the way to Texas. With port access to two oceans, Enbridge can give customers unparalleled access to new markets.

Scale has given Enbridge the best pricing power in the industry, which helps fuel a 6.3% dividend. With billions of dollars earmarked for growth next year, this payout could rise yet again in 2020.

Trust in this growth

With a dividend of just 4.4%, TC Energy Corp. (TSX:TRP)(NYSE:TRP) is often ignored. That’s a mistake.

While TC Energy may lag in income, it excels when it comes to growth. Since 2000, its dividend has grown by 7% per year. That’s on top of double-digit gains for the stock price.

Over the next several years, management wants to grow the payout by at least 8%. With $20 billion in projects under development, this is an achievable goal.

Diversify your bets

Inter Pipeline Ltd (TSX:IPL) leads the pack when it comes to dividends. After its latest increase, the stock now yields 7.6%.

Rather than competing directly with giants like Enbridge and TC Energy, Inter Pipeline has carved out a niche model that specializes in oil sands pipelines and natural gas processing facilities.

It also owns various refinery assets that complement these segments well, offering customers a one-stop-shop for their output.

The payout ratio is a bit higher than the other companies on this list, but over the next year or two, its Heartland Petrochemical Complex should come online, adding $500 million in incremental EBITDA to the books. By then, the current share price should look like a steal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Ryan Vanzo has no position in any stocks mentioned. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Contribution Limit Stays at $7,000 for 2025: What to Buy?

This TFSA strategy can boost yield and reduce risk.

Read more »

Make a choice, path to success, sign
Dividend Stocks

Already a TFSA Millionaire? Watch Out for These CRA Traps

TFSA millionaires are mindful of CRA traps to avoid paying unnecessary taxes and penalties.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Tech Stocks

Best Tech Stocks for Canadian Investors in the New Year

Three tech stocks are the best options for Canadians investing in the high-growth sector.

Read more »

Happy golf player walks the course
Dividend Stocks

Got $7,000? 5 Blue-Chip Stocks to Buy and Hold Forever

These blue-chip stocks are reliable options for investors seeking steady capital gains and attractive returns through dividends.

Read more »

Concept of multiple streams of income
Stocks for Beginners

The Smartest Dividend Stocks to Buy With $500 Right Now

The market is flush with great opportunities right now, and that includes some of the smartest dividend stocks every portfolio…

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

It’s Time to Buy: 1 Oversold TSX Stock Poised for a Comeback

An oversold TSX stock in a top-performing sector is well-positioned to stage a comeback in 2025.

Read more »

woman looks at iPhone
Dividend Stocks

Where Will BCE Stock Be in 5 Years? 

BCE stock has more than halved in almost three years. Where will the stock be in the next five years?…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Take Full Advantage of Your TFSA: Income-Generating Ideas for 2025

These TSX stocks pay attractive dividends.

Read more »