With oil prices stagnating of late, and the spread between heavy Canadian crude and lighter crude produced in the U.S. and globally widening, buying into the energy sector (or the energy infrastructure sector for that matter) may seem like a silly thing to do currently.
After all, the lack of positive catalysts on the horizon should make for a bumpy ride for any investor seeking value or safety, especially in the relatively expensive market filled with few true value opportunities.
At current levels, however, specific pipeline companies are approaching valuations which look very attractive when compared to historical levels.
Companies like Enbridge Inc. (TSX:ENB)(NYSE:ENB) and Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA) have continued to provide robust earnings growth which has fueled significant dividend increases and the expectation that the relatively high levels of dividend increases will continue into the medium to long-term.
Most Canadian pipelines have the majority of their capacity spoken for via "take or pay" contracts which essentially ensure that the pipeline gets paid regardless of how much product actually flows through a pipeline over a given time frame.
The current demand and forecast demand for pipeline utilization out of Western Canada is at an all-time high as well, providing additional certainty to future cash flows which always contain some element of uncertainty. The Canadian government is keen to support job growth and economic development in this sector, providing another tailwind to producers, and therefore energy infrastructure companies transporting their product, for the foreseeable future.
Invest wisely, my friends.
