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Almost all stocks decline in a bear market, but some sectors do better than others. Pipelines and healthcare are two good examples.
Pipeline companies are doing better for two reasons.
For starters, global demand for oil and natural gas is keeping their lines full and their pumps working at maximum capacity. There’s no indication this will end soon, even with growing talk of a recession.
Second, the high dividends paid by these companies offer attractive yields that help put a floor under their prices.
TC Energy Corp. (TSX: TRP) is one pipeline company we have recommended in my Income Investor newsletter. It owns and operates 93,300 km of natural gas pipelines and 653 billion cubic feet of storage in Canada, the U.S., and Mexico. It also has a 4,900 km network of oil pipelines, which supplies Alberta crude to the U.S. market. As well, TC Energy invests in a number of power-generation facilities, including wind, solar, and nuclear.
The company’s first quarter results showed an improvement over 2021. Net income attributable to common shares was $358 million ($0.36 per share) compared with a loss of just over $1 billion (-$1.11 per share) the year before. Last year’s big loss was due in large part to writeoffs relating to the cancelled Keystone XL pipeline (the company has launched legal action to reclaim some of that money). Comparable earnings were almost flat with last year at about $1.1 billion.
Comparable EBITDA was $2.39 billion, down slightly from $2.49 billion in 2021. The company said that comparable EBITDA is expected to be “modestly higher” than 2021 while earnings per share will be “consistent” with last year. It reaffirmed its five-year target of 5% annual EBITDA growth through 2026.
TC Energy raised its quarterly dividend by 3.4% to $0.90 a share ($3.60 a year). The stock yields 5.3% at the current price.
CEO François Poirier said: “The global environment continues to be complex, representing an urgent need to develop greater energy security. Now more than ever, we understand the importance of North America's role in securing global energy supply. By working closely with our customers, we continue to develop innovative energy solutions to move, generate and store the energy people need daily while also advancing our shared goals for sustainability.”
During the quarter, the company finalized contracts for approximately 160 MW of wind projects and 240 MW of solar projects. It also received approval from the Alberta government to move forward to the next stage of its joint venture with Pembina Pipeline to build and operate a carbon capture and storage hub. The next step is to enter into an evaluation agreement to further assess the viability of the project.
The healthcare sector is among the least volatile in a down market. In the healthcare sector, CI Health Care Giants Covered Call ETF (TSX: FHI) is a standout and is also recommended in my Income Investor newsletter. It invests in an equal-weight portfolio of about 20 of the largest healthcare companies listed on North American exchanges. The managers write covered call options on a portion of the stocks to generate extra revenue for unitholders. The goals of this ETF are regular quarterly cash distributions, the potential for capital gains, and below-average volatility.
Most of the stocks in the portfolio are American (95.3%). There is a fractional Canadian position (0.1%). Top holdings include Merck & Co., Gilead Sciences, Cigna Corp., Amgen Inc., and Eli Lilly.
As of May 31, the ETF was showing an average annual compound rate of return of 12.4% since it was launched in June 2018. The yield is a prime attraction at 7.3%, based on 12-month trailing distributions. However, it should be noted that payments vary from quarter to quarter and are not guaranteed.
Another attraction is stability. The fund has not reported a negative year since its launch in 2018 and as of the end of May was holding its own in a rough market with a year-to-date loss of only 1.4%.
This is a small fund, with only $68 million in assets under management. As a result, trading volume is low, with an average of only 8,700 units per day. The MER is 0.71%, lower than direct competitors such as the comparable Harvest Portfolios fund.
The healthcare sector is considered to be lower risk than the broad market, but with less growth potential. CI Financial rates this ETF as “medium” risk. The ETF is suited for those without a significant healthcare position in their portfolios. It offers an above-average yield and relative stability.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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