TFSA Investors: Pick 1 of 2 High-Yield Pipeline Giants

Enbridge stock and Pembina Pipeline stock are both high-yield energy stocks. TFSA investors will have a pleasant problem choosing between the two pipeline giants.

| More on:

If you have available Tax-Free Savings Account (TFSA) contribution room or plan to maximize this year’s annual limit, the best shopping ground in June 2021 is the energy sector. The 52.9% year-to-date gain of the sector versus the TSX’s +14.89% advance reflects the rising crude prices and growing demand for oil.

I suggest you narrow down your pick and choose between Enbridge (TSX:ENB)(NYSE:ENB) and Pembina Pipeline (TSX:PPL)(NYSE:PBA). The two companies are not only the sector’s elite but are high-yield pipeline giants. Either one could be your core holding in your TFSA stock portfolio.

King of the pipelines

Enbridge is the perennial choice of income investors on the TSX. The $95.55 billion energy infrastructure company produces solid revenue streams every year. The average annual revenue is $42.9 billion for the last five years, while the average net income is $3.3 billion. In addition, the company posted the highest profit in 2019 ($5.7 billion).

The current share price is $47.17, while the dividend yield is a mouth-watering 7.08%. Enbridge pays quarterly dividends, so a $20,000 investment will produce $351.50 every three months. The dividend earnings are tax-free in a TFSA. Enbridge’s total return over the last 45.45 years is 44,160.44% (14.34% CAGR).

I can cite three reasons why the king of the pipelines is ideal for TFSA investors. First, Enbridge’s dividend track record is 70 years, and it has raised dividends for 26 consecutive years. Second, there’s cash flow visibility, given that assets are regulated (98% of earnings) if not covered by long-term contracts with investment-grade customers.

Third, management focuses on low-cost organic expansions that enhance revenue and minimize investments at the same. The result is a significant boost in returns. Enbridge has developed a deep competitive moat through the years. Industry peers envy the balanced and diversified asset portfolio, huge customer base, and extensive network of distribution lines.

Merger in the works

Pembina Pipeline is not a pretender to the throne, although its size is only 25% of Enbridge. The $21.16 billion company owns an extensive pipeline network that transports crude oil, natural gas, and natural gas liquids (NGLs) in North America. It also owns gathering and processing facilities, oil & natural gas liquids infrastructure, and logistics business.

The latest development is Pembina’s bid to acquire Inter Pipeline, which is also the takeover target of Brookfield Infrastructure Partners. Pembina seems to have the upper hand, despite Brookfield’s higher offer. Inter Pipeline favours Pembina, saying it would be a better industrial match with growth prospects.

According to midstream industry experts, the bidding war will propel oil and gas stocks. If the $8.3 billion all-stock deal pushes through, another Canadian pipeline giant will rise. Besides getting additional pipeline infrastructure across Western Canada, Pembina will also take on the under-construction Heartland Petrochemical Complex.

At $38.48 per share, Pembina pays a hefty 6.6% dividend. The difference with Enbridge is that the dividend payouts are monthly, not quarterly. Long-term contracts support Pembina’s integrated business models. The monthly dividends should be consistent and recurring, as the company generate 90-95% of EBITDA from fee-based contracts.

Pleasant problem

The choice between Enbridge and Pembina Pipeline is a pleasant problem for TFSA investors. Both are high-yield pipeline giants that are ideal core holdings in a tax-free investment account. The determining factor could be the manner of dividend payments.

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.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS and Brookfield Infrastructure Partners.

More on Dividend Stocks

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

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »