Weekend Reading – Are pipeline stocks in trouble?
Hi Everyone!
Welcome to some new Weekend Reading, asking: are our pipeline stocks in trouble?
Image Source: Pexels, Andrea Piacquadio
Some takes and a reference to an article on that but first, recent reads on my site:
Last weekend, I shared the data should you want to spend about $75,000 per year in retirement:
Weekend Reading – What you need to save to spend $75,000 in retirement income
I also recently posted our monthly dividend income update, inching higher, doing next to nothing:
Weekend Reading – Are pipeline stocks in trouble?
Near-term, price-wise, if you need to sell these stocks?
Maybe, some concern there.
Long-term, as a buy-and-holder investor?
I doubt it.
On that theme, I enjoyed this update at Cut The Crap Investing with insights from the gents at Stocktrades.ca:
Should you run away from TC Energy and our pipelines?
That article aligns with my thesis on these stocks/companies along with some other more fundamental reasons why I own Canadian pipeline stocks:
- Major pipelines like Enbridge (ENB), TC Energy (TRP) and Pembina (PPL) can be bond-like proxies in your portfolio – meaning these companies deliver real income via dividend payments without selling shares. Amongst a diversified DIY portfolio including sectors beyond Canadian energy, you can buy-and-hold your desired mix of pipeline stocks for income. Nothing new here really from my own approach although worth a mention. 🙂
- Now, should dividends be cut, if they happen (like TC Energy has done so in the past) it’s not like the dividend is likely to be eliminated permanently/forever. Dividend cuts can be buying opportunities by DIY investors to obtain decent companies in trouble, on sale. Remember AQN (Algonquin Power)? Yes, they cut their dividend and that impacted my portfolio too – only slightly – since I try to keep most stocks well below 5% of our total portfolio for that key reason. I wrote about that here.
Dividend cuts are never desired by shareholders but they can be the correct management decision for the long-term viability of the company to thrive once more. Just like share buybacks can be a good decision, just like acquisitions can be a good decision, just like paying down debt can be a great decision, and so on and so on.
Dividends are an important part of total return which means total return in your portfolio matters.
Source: Honest Math.
- Back to the article, I would agree:
“The pipelines will certainly look attractive to retirees and near retirees. We might think of utilities as bond proxies. Add in the fact that we can earn up to 5.5% with GICs and things are looking very good for retirees. We can build a very attractive income base.”
- And finally, I just don’t see how our country can operate, literally, without such pipelines running. Last time I checked, most Canadians enjoy heating, cooking, and so on thanks to pipelines for transportation. Like electricity and running water, have you ever considered what your day or week looks like without these companies providing these services? Just investing food for thought.
As a long-time owner of ENB, TRP and PPL, I will remain invested in each. If anything I will buy more of these companies with time since I already reinvest dividends paid by these companies.
My hybrid approach aside…
If you are in individual stock doubt: just index invest.
Low-cost ETF XIU continues to be my favourite in Canada to own the largest 60 stocks in Canada who make money year-after-year. You can fire your financial advisor, keep more money in your pocket/brokerage account in doing so, and ride market-like returns for decades to come without individual stock risk.
My favourite ETFs for Canadian content and beyond are always found here:
More Weekend Reading – beyond are pipeline stocks in trouble?
On Cashflows & Portfolios, we updated this post so you can find and own GICs now yielding 5.5% and MORE!
Interesting new service on my friend’s site Retire Before Dad.
Craig shared a guest post from a young entrepreneur named Preston Yadegar. Preston has built an online platform called the Shareholder Vote Exchange (SVE) “to empower individual investors to generate additional income from their existing stock holdings by selling their shareholder voting rights.”
From Craig’s site and article:
“When you own a stock, each share represents a vote during the annual shareholders meeting. Many individual investors never vote because they don’t care, are lazy, or ignore the email.
But other entities may see cash value in investor voting rights for specific corporate initiatives, especially when pooled with other investors. However, investors have never had a place to facilitate the sale of voting rights — until now.”
This service seems to be focused on U.S. investors and brokerages but I wonder if it might make the leap to Canada?
As a follow-up to my Fat FIRE post, whereby some investors claim to need or want closer to $3M (million!) to retire with…on the other end of the spending continuum is guest writer Alain Guillot on Financial Independence Hub this week.
“I was told on Twitter that living on less than $24k per year is very frugal. Maybe it is, but I would like to explain how I live on less than $24K and I feel that I live like a king.”
Wow.
I could not live on $24k per year certainly where I live right now as a homeowner. Home maintenance, utilities (hydro, water, natural gas, internet, TV, cell phones), our City of Ottawa property taxes and our groceries combined consistently exceed $2,000 per month on average. I also have a paid off car to maintain although I do like Alain’s frugal cycling choice!
What say you? Could you live like a king on $24,000 per year?
If you did want a car, over a bike, I stumbled on a great auto loan payment calculator from Investopedia.
Finally, Tawcan has started a comprehensive view of his portfolio. I’ve slowly consolidated my portfolio over time (since 2015 really) to focus on “TULF” stocks and then indexed ETFs.
What is TULF?
- “T” for telecommunication companies (think Bell, Telus).
- “U” for utilities (think Fortis, Emera, Capital Power, Algonquin Power, Brookfield Renewable Partners, and others)
- “L” for low-yielding dividend growth stocks with growth potential (think Canadian National Railway, CP Rail, Waste Connections, Metro, Alimentation Couche-Tard, and others), and last but not least everyone’s sector favourite in Canada for dividends…
- “F” for financials (you know the names including life insurance companies).
Buy these companies over time and leave them alone for compounding power. XAW is a great ex-Canada ETF to cover the rest of your investing world, including the U.S. market, for cheap.
As always, there are Deals to be had on that page – always good to save, invest and earn more where you can, staying frugal or otherwise. 🙂
Need help with any retirement income drawdown order or projections for your retirement? Contact me here over the summer for some low-cost solutions.
Enjoy your weekend!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hey Mark – I have about $20k Canadian to invest – I don’t mind beefing up my TC Energy holdings (I have too much ENB already), but what do you think of perhaps splitting my investment between TC Energy and Telus (or Scotia).
I think Telus is potentially may run into issues with dividend payments down the line, but would possibly be higher returns than TRP or BNS.
Having said that, I’m thinking TRP and BNS would have a higher probability of continuing to payout their dividends. The downside is, if history is any guide – lackluster total returns from TRP and BNS. It’s a bit of a dilemma.
Yet, I have a priority to dividend income first and foremost so I’m steering towards TRP and BNS.
A bit of a contrarian view of BNS that perhaps they’ll turn around one day. But in the meantime, get their juicy decent dividend growth rates.
I could protect the money and get into the GIC’s – but I’d much rather ride out the storm and enjoy the wild ride for now in equities while the yields are attractive.
Thoughts, or red flags you see with either BNS or T?
Or, perhaps any other high yield dividend opportunities you see at the moment?
I must admit, I’m not into ETF’s, never bothered with that. I know I’d be giving up on dividends, in place of stock price returns and I do get that.
Gosh, Greg, hard to say.
I wish I had your problem. 🙂 Saving my $13k or so for 4 months out for TFSA contribution room.
I have ENB, TRP, and PPL, each ~2% of my portfolio. I also have BCE and T.
If you have an income-first and growth mentality, I think RY, TD, CNQ and a few others deserve attention first.
I wouldn’t pass up putting a bit of cash to work into CBIL or UBIL. I mean, close to 5% yield is easy money. (*Disclosure I own CBIL).
If yields are to your liking, then the top ones to consider are those pipelines, and then BNS. A good screen for ideas is Stingy Investor along with the existing BTSX list.
http://www.stingyinvestor.com/SI/strategy/tse60.d.shtml
https://www.myownadvisor.ca/beat-the-tsx/
From BTSX, that also means you might want to bring Emera (due to dividend cut of AQN) into play as well.
I own all top-10 BTSX stocks and DRIP most of them every quarter.
Mark
Good informative post. thanks for sharing
I enjoyed the theme of this weekend’s reading post. I have been grappling with the double digit pullback of my pipe’s and telcos. I do not intend to sell, unless the dividend payout gets excessive and they prioritize increases over debt payment. I view TRP’s spinoff as a distraction by management. As mentioned in the articles provided a similar restructuring could have been done internally. I may however, add to ENB as my cash position grows. As always, thanks for providing some links for my weekend study and enjoyment.
LC
Most welcome! It’s fun to consider some themes for the week.
No intention here of selling ENB, TRP or PPL. Own all three albeit all of them are less than 2% of my/our overall portfolio value at this time – so I have close to 95% of my investments in other stuff. I just appreciate diversification.
Have a great weekend,
Mark
Hi Mark,
I’m no stranger to pipelines. I bought my first pipeline company in TransCanada Corp. in 2003 for our taxable portfolio. In 2004 I added Enbridge and Terasen Inc. In 2005 Terasen was acquired by Kinder Morgan. I actually still own Terasen, but only indirectly, since it was bought by Fortis from Kinder Morgan in 2007 and I first started buying shares in Fortis in 2005.
I still hold shares in TRP, ENB, PPL and KEY. I was buying more shares in the latter three in 2020 when dividend yields for these companies had reached between 9 and 10%.
I don’t know of too many bonds that can grow their dividends at 3 to 5% per year in the case of TRP and ENB, or maybe it’s just me.
Off topic: What do craft beer drinkers do in Ottawa when they want some Quebec brews to bring home? Do they just bring it across the provincial border into Ontario or does that create a problem? Just curious.
Have a nice weekend.
The laws about transporting alcohol across provincial borders was revoked in 2019. You are now free to bring alcohol across the border. https://hellolcbo.com/app/answers/detail/a_id/1370/~/transporting-beverage-alcohol-across-provincial-borders
Thank you Tucker. I hadn’t realized the interprovincial laws for alcohol had changed.
Thanks for your comment. Like you, I still plan to hold shares in TRP, ENB, and PPL. I don’t any own KEY at this point.
Ha, I liked your random comment. We just drive over and get the beer we want or need. Some great brewery tours in Ottawa area on both sides of the river. 🙂
Mark
I read the post by Alain Guillot and thoroughly enjoyed it. I have always tried to live fairly frugally for the most part to allocate my money towards the things that bring me joy that cost a lot of money (raising kids is my biggest expense, if I am honest).
I hope AG and others like him take into account that should he lose his apartment he would be tossed into an environment that could double his rent. I had friends who lived in the same house in Vanier for 15 years paying only $800 in rent. Before the pandemic I encouraged them to research what the average rent was for a house in the area and save the balance (upping the amount every year) so that they learned to live off of a budget that reflected current market rates. My logic was that should anything happen and they found themselves having to move into an expensive market, they would have some backup cash to weather the storm AND they would already be used to “paying” a current rate.
Of course, during the pandemic house prices exploded and their landlord sold the property, sending them into a very tight rental market where prices were 4x-5x what they were used to. Because they were lower income to begin with, they suddenly found themselves with two roommates in a three bedroom condo because they had zero give in their lifestyle to accommodate their new reality – a reality of a rental market that had under 2% vacancies. They were forced to downsize an entire house worth of stuff very quickly and it was incredibly stressful. They are also now much further away from their jobs which has essentially tripled their commute.
While I admire people who live lean, I simultaneously feel that they should build in contingencies. Luckily, AG has a few income streams he could leverage, and he only has himself to support, which is fantastic. I’m sure he will be fine. But for many other people who may not have as much wiggle room, they should make sure that they are following trends and making backup plans. Live as lean as possible for sure but definitely think of how you would manage if your expenses somehow doubled overnight.
Thanks for your detailed comment, Tucker.
Ya, I wouldn’t want nor wish to live on $2k per month in Ottawa but I could live off less if I wanted to. It would be hard to find any 1-bed place in Ottawa for less than $1,200 or so per month for rent, for starters.
To your point, you need contingencies built-in just in case the landlord you are renting from decides to do something with the place.
We’ve decided to go the route of home/condo ownership although I wouldn’t be against renting down the road. We’ll own our place within the next 8-9 months.
Did you decide to own or rent yourself?
Mark
I commented last week that we had just paid off our mortgage 🙂 – and I am firmly in the OWN camp for myriad reasons (kids, mobility issues etc). But like the old adage says, personal finance is personal. I am not married to any side of own vs. rent debate but only recommend that people should review their needs and make decisions that way instead of relying on emotions or cultural expectations.
Ah, yes, sorry, just re-reading that now!!!
Yes, personal finance is very personal. I’ve sad that on this site pretty much since Day 1.
Morgan Housel had a good line about being debt-free and keeping some cash:
On that note, some of Housel’s confessions:
“We own our house without a mortgage, which is the worst financial decision we’ve ever made but the best money decision we’ve ever made.” “On paper (paying off a mortgage with rates so low), it’s defenseless. But it works for us.”
“Over the years I came around to the view that we’ll have a high chance of meeting all of our family’s financial goals if we consistently invest money into a low-cost index fund for decades on end, leaving the money alone to compound.”
“We also keep a higher percentage of our assets in cash than most financial advisors would recommend – something around 20% of our assets outside the value of our house. This is also close to indefensible on paper, and I’m not recommending it to others. It’s just what works for us.”
https://www.myownadvisor.ca/the-psychology-of-money/
Thanks again for your comment,
Mark
Over the last couple of weeks we pulled another $200K out of equities within the wife’s RRSP (liquidated all the BN, BAM, TD, BEP.UN) and went with a five year GIC ladder. This brings her RRSP to a 60/40 GIC/Equity position. Her TFSA is still almost 100% equity though. We’re very comfortable with the increased fixed income within this account with these rates. With this transition it brings the current GIC to equity ratio to 38/62. We’re good with this for now.
GICs are providing some great, secure, income now. Wild. Yes, I bet you are:
“We’re very comfortable with the increased fixed income within this account with these rates.”
Most retirees would be wise to have some cash-alternative ETFs and/or GICs churning out 4-5%+ income.
Have a great weekend, Lloyd!
HI Mark …besides enjoying a generous dividend . I don’t see how TC ENERGY will make me richer over the coming years. Since my strategy is focused on total returns by selecting dividend growers. TC ENERGY does not meet my investing strategy . IT will only provide dividends and it will eventually become a burden. Despite TC ENERGY promise to its shareholders it doesn’t mean it will always be that way. I see it as a “deluxe bond” with MAYBE ? 2-3 % future annual growth . Way to much debt for my liking
That’s a fair comment, Grant. I mean, when you look at 5-year returns, TRP, ENB and PPL have not delivered on total returns compared to other stocks. That said, I own these pipelines as essential services in my portfolio along with dividend growers like CNR, CP, WCN, and more. The mix of higher-yielding stocks and lower-yielding stocks basically creates my own Canadian dividend fund without any ongoing money management fees.
I think you’re right on growth, very low growth anticipated from these pipelines compared to alternatives. Higher interest rates are not helping these pipeline stocks nor utilities these days – which makes buying more of these companies appealing to me.
When in doubt, index invest if unsure of any individual stock. I have simply decided to unbundle my Canadian stocks, that’s all. 🙂
Thanks for your comment.
Mark
Hey Mark,
Good info and post. I still hold PPL, TRP and ENB. Short term pain maybe but long term in my opinion, you have to own these stocks. I have been adding newly bought shares recently as well as reinvesting my dividends for many years now.
My main thought process here is this. I own them because I pay them every month to deliver my utilities. Also Government regulation and environmental factors will never allow anyone to put more lines in the ground. They seem to be the only game in town so to speak.
Keep the faith,
Charles
I have the same feeling – these are essential utilities. Until our energy grid is dramatically different, not going to sell.
Mark
Well if Justin has his way our energy grid will be free of these companies in a decade. Good luck paying for electricity if you live on the prairies.
Seriously, right, Marcel?
Take care!
Mark
Marcel said: “Good luck paying for electricity if you live on the prairies.”
Manitoba’s electricity provider is government/citizen owned, and it’s fantastic – green/hydro, price regulated, a stable employer with a DB pension plan, great service, and very importantly, one of the lowest cost per KWh in North America. Provided the government don’t privatize them, that part of the prairies will be fine for electricity.
Thanks, Bob.
All joking aside, yes, thanks for that addition, MB power is a provincial crown corporation. 😉
https://www.hydro.mb.ca/corporate/