Join Fund Library now and get free access to personalized features to help you manage your investments.
For Canada’s two major pipeline companies, 2021 was a year they’d both rather forget. It began with the expected but disappointing announcement that newly elected President Joe Biden was pulling the plug once and for all on TC Energy’s multi-billion-dollar Keystone XL pipeline.
That wasn’t the only problem. Work on the company’s Coastal Gaslink pipeline was held up for a variety of reasons, including protests, Covid, and permit delays, The project is behind schedule and costs have increased significantly.
Meanwhile, our other pipeline giant, Enbridge, was experiencing cross-border problems of its own. The state of Michigan ordered Enbridge to shut down the company’s Line 5, which runs beneath the Straits of Mackinac and supplies much of the petroleum needs of Ontario and Quebec, as well as Michigan and Ohio.
The action was taken at the initiative of Michigan Governor Gretchen Whitmer, a rising star in the Democratic party, who worries that a rupture in the aging line would cause irreperable damage to the Great Lakes. Enbridge responded with a plan to build a state-of-the-art tunnel to encase the line.
But Michigan didn’t budge. This prompted the federal government to invoke the terms of an almost forgotten 1977 Canada-U.S. pipeline treaty to keep the line open. The case is ongoing.
Despite all these high-profile woes, investors have been buying the stocks and the prices are moving higher. TC Energy gained 13.7% last year and added another 11.5% in the first four weeks of 2022.
Enbridge gained 21.4% last year and is up 7.3% in January.
Canadians are voting with their money, and the consensus is that the pipeline companies still have a lot of profitability left, despite concerns about global warming. Here’s a closer look at the two biggies.
Background: Enbridge Inc. is one of the largest energy infrastructure companies in North America. It operates an extensive network of crude oil, liquids, and natural gas pipelines and is also involved in regulated natural gas distribution utilities and renewable power generation.
Performance: The stock hit a one-year high of $54 in November but then pulled back to the $47 range in mid-December. It’s been in an uptrend since.
Recent developments: Third-quarter results showed a significant improvement over the same period in 2020. Adjusted earnings came in at just under $1.2 billion ($0.59 per share) compared with $961 million ($0.48 per share) the year before. For the first nine months of the 2021 fiscal year, adjusted earnings were almost $4.2 billion ($2.06 per share), up from $3.8 billion ($1.86 per share) the year before.
Distributable cash flow for the third quarter was $2.29 billion, compared with $2.088 billion in 2020. For the nine months, it was almost $7.6 billion, up from $7.2 billion in 2020.
“The return of energy demand growth to its pre-pandemic trend, coupled with underinvestment in conventional energy and the recent rise in global energy prices, underscores the criticality of affordable, reliable and secure energy supply for consumers and our social well-being,” said CEO Al Monaco. “We believe sustainable development of North America’s significant energy resources is essential to meeting both global energy needs and societal emissions reduction objectives. The energy we deliver is critical to fueling quality of life in North America and globally and this will continue for decades to come.”
On Dec. 31, Enbridge announced the closing of the agreement through which a subsidiary sold its 38.9% non-operating minority ownership interest in Noverco Inc. to Trencap L.P. for $1.14 billion in cash. Trencap is a consortium led by Caisse de dépôt et placement du Québec.
The company said the sale “will further strengthen our financial flexibility. Proceeds from the sale will be initially used to repay short term borrowings and support Enbridge's secured capital program.”
Guidance: In December, Enbridge announced financial guidance for the balance of 2021 and for fiscal 2022. Among the highlights:
Dividend/buybacks: The company will raise its quarterly dividend by 3%, effective with the March 1 payment. The new rate will be $0.86 per share ($3.44 per share) for a yield of 6.5%. This marks the 27th straight year that Enbridge has increased its dividend.
The company also announced the approval of a normal course issuer bid to buy back up to 31,062,331 shares of its common stock to an aggregate amount of up to $1.5 billion. That would represent 1.53% of the total shares outstanding.
Outlook: The numbers are trending in the right direction, but the market still is wary, as the high dividend yield shows.
Background: TC Energy is one of North America’s major pipeline companies, with 92,600 km of natural gas pipelines and 4,900 km of oil pipelines. It also owns or has interests in 10 power generation facilities with combined capacity of approximately 6,000 megawatts.
Performance: The stock hit a 52-week high of $68.20 in October. It pulled back to $54 in early December but has since recovered strongly.
Recent developments: The company reported comparable earnings for the third quarter of $1 billion ($0.99 per share), compared with $893 million ($0.95 per share) in the same quarter of 2020. Comparable EBITDA was $2.2 billion, down by $54 million from the same period last year. Reasons included the impact of lower flow-through depreciation and financial charges on the Canadian Mainline. Revenue was slightly ahead of the prior year at $3.24 billion.
“During the first nine months of 2021, our diversified portfolio of essential energy infrastructure assets continued to perform very well and reliably meet North America's growing demand for energy,” said CEO François Poirier. “Comparable earnings of $3.21 per common share were 5% higher compared with the same period last year while comparable funds generated from operations totaled $5.3 billion. Both amounts reflect the strong performance of our assets and the utility-like nature of our business together with contributions from projects that entered service in 2020 and 2021."
Dividend: The stock pays a quarterly dividend of $0.87 a share ($3.48 annually) to yield 5.6% at the current price. I expect to see a dividend increase in the first quarter of 2022.
Outlook: The company has a $22 billion secured capital program underway, with all the projects underpinned by long-term contracts and/or regulated business models. These should increase earnings and cash flow as they enter service.
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.
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
