If you’re looking for energy stocks to buy, and you want safe exposure to the energy industry, check out energy infrastructure companies Enbridge Inc. (TSX:$ENB) (NYSE:$ENB) and Inter Pipeline Ltd. (TSX:$IPL).
Both companies are involved in storing, transporting, distributing, or processing energy, which makes their profitability far more stable than oil and gas producers. Why? Because oil and gas producers tend to have earnings that are more sensitive to the rollercoaster of underlying commodity prices.
Another reason as to why Enbridge and Inter Pipeline offer safe exposure to the energy sector is because they have decent yields of 4.7-6.5%, which should, if you’re doing your job correctly, appeal to income investors. In addition, it is likely that both companies will continue to increase their dividends in years to come.
Why Should You Invest in Enbridge Inc?
Impressively, Enbridge, a Calgary-based energy delivery company, has increased their dividends for 21 consecutive years. Over the course of the last decade, Enbridge has managed to increase its dividend at a compound annual growth rate (CAGR) of 13.9%.
Following the merger with Spectra Energy, Enbridge has claimed the title of having the highest-quality liquids and gas infrastructure assets in North America. The company has roughly $26 billion of secured near-term projects and $48 billion of potential projects which will help to support long-term dividend growth.
As a matter of fact, Enbridge plans to increase its dividend at a CAGR of 10% to 12% throughout 2024. If math happens to be your forte, you will see that an investment in Enbridge today will reach a yield on cost of nearly 9.3% by 2024 using the low end of that estimate.
In regards to Enbridge’s cash flows, they are mostly underpinned by long-term contracts with very little exposure to volumetric or commodity price. It targets a long-term payout ratio of 50% to 60% of its available cash flow from operations. All together, these help to improve the stability and safety of its dividend.
Sitting at $51.30 per share, Enbridge offers a yield of roughly 4.8%. According to the analyst consensus from a recent Thomson Reuters report, there is a forecasted 12-month target price of $62.50 on the stock. What does this mean? Well it represents nearly 22% upside potential, or a total return of 26%.
Why Should You Invest in Inter Pipeline Inc?
Nearly 25% of Inter Pipeline’s earnings are commodity based. While half of its earnings stem from transporting oil sands, 26% are from processing natural gas liquids, and 17% are from traditional oil pipelines.
For the last eight consecutive years, Inter Pipeline has increased its dividend. Additionally, in the last three years, the company has raised its dividend at a CAGR of 10.1%.
Sitting at roughly $25 per share, Inter Pipeline offers a yield of almost 6.5%. When looking at the analyst consensus from a recent Thomson Reuters report, one will see that there is a forecasted 12-month target price of $30.90 on the stock. Again, what does this mean? This represents nearly 24% upside potential, or a total return of 30%.
What’s the Takeaway?
For those who like dividends, now might be the time to add Enbridge and Inter Pipeline to your energy portfolio. Due to their shares pulling back as of late, both companies are offering decent yields and attractive upside potential.
Featured Image: depositphotos/solarseven
