The stock market is heading south as budget tensions in our neighbouring country are building investors’ anxiety around a recession. The opposing view of Republicans and Democrats on federal spending has once again created uncertainty: first in June when the government was on the brink of a default and now in October as the government just avoided a shutdown. This uncertainty on whether the U.S. government will pay its debtors and employees on time further strengthens ratings agencies’ worries, because of which they downgraded the United States.
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Why are Canadian income stocks falling?
This uncertainty around the U.S. government shutdown is creating uncertainty for Canadian companies that export goods and services to America. In a shutdown, the government temporarily furloughs employees in affected departments, slowing operations in that area.
Canada relies heavily on oil and gas exports through pipelines and air travel to the United States. If the U.S. government cuts costs in border patrols and airport screening, it could slow cross-border transportation and disrupt flights, impacting the respective sectors. The longer the shutdown, the deeper the impact.
While government shutdowns create a temporary slowdown, stocks recover once the funding bill is passed. The U.S. President Joe Biden passed a 45-day funding bill to avert a shutdown. The next date is November 17 to pass the funding bill. Until then, the market will remain volatile, mostly bearish, as fears of a rate hike and a recession loom.
Two income stocks to buy today and get rich in the future
The two-year-long market bearishness (caused by interest rate hikes and government sending woes) has created an opportunity to buy income stocks at their lows. The U.S. funding cuts, if any, would be channelled toward scientific research and nutrition aid. It won’t impact Canada’s energy exports to America.
Enbridge and TC Pipeline
Enbridge (TSX:ENB) and TC Pipelines (TSX:TRP) stock fell 5.87% and 5.62%, respectively, since the U.S. shutdown woes began. These stocks fell during the June 1 default warnings as well. But they surged sharply after the government extended the budget.
Both pipeline stocks are tapping the North American natural gas export market. They earn the majority of their revenue by transmitting oil and gas through its pipelines that connect Canada and America. Any uncertainty in the U.S. government impacts their business earnings as it slows operations through delays in permits of new pipelines and more.
The two companies are undergoing corporate changes. TC Pipeline is spinning off its oil business. Enbridge is acquiring three gas utility businesses in America. A US government shutdown could delay approvals around these deals. While the short-term could be challenging for the pipeline companies, the long-term outlook remains stable.
Enbridge and TC Pipelines have long-term supply contracts with most suppliers that keep the cash flow coming. Moreover, they maintain their leverage and dividend payouts at the target level to have liquidity for difficult times. Enbridge has successfully increased its dividend every year for the last 28 years and TC Pipeline for 23 years. In the worst-case scenario, they might pause dividend growth but continue paying what they have been paying shareholders.
Investor tip
Such opportunities don’t come often. The time is ripe to invest a good amount in these pipeline stocks and lock in an over 8% yield. If you have purchased these stocks, you can add more to your portfolio and reduce your average cost per share.
As per the rule of 72, your money will double in nine years with an 8% yield. And the two stocks will also see capital appreciation when the economy recovers. That could accelerate the returns. And let us not forget the annual dividend growth of 3%. All this can compound your returns and help you in your journey to get rich in the long term.
