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Canadian pipeline stocks are well known for their high dividend yields. Many Canadian pipelines yield more than 6%; in the past, yields above 7% could be found in the space. These days, the yields aren’t as high as they used to be, as the oil bull market took stock prices higher. Nevertheless, Canadian pipeline yields are still far above average. If you’re interested in high-cash flow investments, pipelines may be right for you.
That still leaves open one question, though: which pipeline stock is best? Canada is home to several pipeline companies, each with its own unique characteristics. They are not interchangeable, so it pays to know which one is best suited to your needs.
In this article, I’ll explore the strengths and weaknesses of three Canadian pipeline companies, so you can decide which is best for you.
Enbridge
Enbridge (TSX:ENB) is a company that transports oil from Canada to the United States. It’s a true giant of a company, doing over $4 billion in annual profit.
Enbridge is very well known for its high dividend yield. At today’s prices, the yield is 6.4%, which is plenty high but nothing compared to the yield Enbridge had in the old days, when oil was out of favour. In the 2015-2020 oil bear market, you could often snap up Enbridge shares with a 7.5% yield. At the bottom in the COVID-19 2020 bear market, you could grab 12%! These days, the yield is a little lower. This year’s oil bull market took Enbridge stock to new heights, which pushed the yield down. Still, it has nearly triple the yield of the average Canadian stock.
The downside with Enbridge is that it has a very high payout ratio. A stock’s “payout ratio” is its dividend divided by its earnings. If it’s too high, then the company doesn’t have much money left after paying dividends. Enbridge’s earnings-based payout ratio is over 100%, which is way too high, although the cash flow based payout ratio is 70%, which isn’t too crazy.
Pembina Pipeline
Pembina Pipeline (TSX:PPL) is a Canadian pipeline with a 5.7% dividend yield. One unique feature of PPL stock is that its dividend is paid monthly. This doesn’t affect the long-term return very much, but it can help if you’re someone who relies on dividends to pay day-to-day living expenses. Pembina is not just a pipeline company. It also operates storage terminals, a marketing segment that sells oil and gas for profit, and more.
So, it’s an operationally diversified oil company that has its eggs in many baskets.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is a Canadian limited partnership that you can buy on the stock market. It invests in all kinds of different assets, including the pipeline company Inter Pipeline. Inter Pipeline is a firm that sends oil and gas around Western Canada. It also processes liquified natural gas. Inter used to be a stock that you could buy on its own, but now it’s part of the Brookfield Infrastructure Partners family.
That might be a good thing, because BIP is a very sophisticated asset manager that has lucrative investments in many different areas and pays a dividend yielding 4.45%.
