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What are we looking for?

Sustainable dividends from Canadian pipeline stocks poised to gain – whatever Keystone XL’s fate.

The screen

This week, the U.S. Supreme Court upheld a lower court ruling in Montana that blocks a key environmental permit for TC Energy Corp.‘s Keystone XL oil sands pipeline. That project would pump crude from Alberta to U.S. Gulf Coast refineries.

Still, TC Energy (formerly TransCanada Corp.) and other top pipelines will likely prosper whether XL and other controversial projects proceed or not. That’s because the difficulty in getting new pipelines approved only serves to highlight the value of existing pipelines. As a group, they benefit from long-term shipper contracts but also the high barriers to entry for new competitors.

From a list of Canadian pipeline stocks, we singled out those profiting from diverse operations but also offering growth. We then applied our TSI Dividend Sustainability Rating System, appraising companies based on these key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated five pipeline stocks: TC Energy operates 97,500 kilometres of pipelines, with key new projects – outside of Keystone XL – to spur growth. Enbridge Inc.’s own vast network also crisscrosses the border. Big power producer Canadian Utilities Ltd. gets a chunk of its profits from its 64,000 kilometres of pipelines in Alberta, Australia and Mexico. Inter Pipeline Ltd. concentrates on Western Canada and Europe, while Pembina Pipeline Corp. operates an 18,000-kilometre network snaking its way across North America.

We advise investors to do additional research on any investments we identify here.

Select TSX-listed pipeline stocks

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)1Y Ttl. Rtn. (%)Recent Price ($)
1Enbridge Inc.ENB-THighest118.082.6-13.740.70
2TC Energy Corp.TRP-THighest115.753.5-12.556.73
3Canadian UtilitiesCU-THighest105.19.3-7.733.80
4Pembina PipelinePPL-TAbove Average97.817.8-33.932.25
5Inter Pipeline Ltd.IPL-TAbove Average74.05.2-44.812.14

Source: Dividend Advisor

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E,
dividend yield and industry outlook to decide final placements. 

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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