With interest rates now on the rise, a number of high-yielding equities have experienced a rough ride of late, with valuation multiples coming down as a reflection of the tendency for investors to view such equities on par with bonds and other fixed income securities.
This decline in the valuation multiples of specific utilities or energy transportation companies has provided investors with an attractive entry point for such securities, and a correspondingly higher yield for those firms which have decided to keep their dividend static or raise their dividend in this current environment.
One company I have been keeping my eye on of late is TransCanada Corporation (TSX:TRP), an energy infrastructure company which is currently trading at a discount of more than 10% to the company's 52-week high, despite regulatory support for the company's Keystone pipeline and expectations that energy infrastructure companies such as TransCanada should benefit long-term from a relative lack of capacity in this sector to get Canadian oil out of Canada.
With a significant amount of Keystone's capacity already booked, securing a revenue and earnings stream for years to come, I expect to see increased distributions to shareholders over time far outpace the increases an investor would potentially see in fixed income securities over a decade or multi-decade long time frame.
The question of how high interest rates will go, and how quickly, over the medium term is a question which has currently been priced into TransCanada's stock price. Instead of focusing on interest rates, however, I suggest investors look to the long-term to decide if high-yielding equities fit into their portfolio over the long-haul.
Invest wisely, my friends.
