Canadian investors love their pipeline and utility stocks. And mostly, they like the big (and mostly growing dividends). We might consider the stocks as bond proxies. And certainly some capital gains can come along for the ride. I have seen recent reports suggesting that the dividends are not safe in the pipeline space. There can be a misunderstanding of how to evaluate a pipeline stock, or other utilities such as the modern utilities – telco stocks. In this post we’ll look at how to evaluate a pipeline stock with respect to dividend coverage or ‘safety’. Canadian pipeline stocks kick off the Sunday Reads.
Kyle Prevost penned a very solid weekly wrap, in Making Sense of the Markets at MoneySense. Kyle focused on Canadian pipeline stocks and keyed in on Enbridge, one of my personal holdings in the Canadian Wide Moat Portfolio.
Yesterday I posted on the incredible advantage of using defensive sectors for retirement. Utilities are in the mix along with consumer staples and healthcare stocks.
The MoneySense post included a video where Mike Heroux took a dive into Enbridge (ENB) and their financial reports. You’ll discover the key metrics to consider to measure the dividend coverage.
From that video, we now see that the dividend coverage is at 69%. Mike sees the dividend as well covered and leaves the path open to ongoing dividend growth.
Mike offers that the dividend is more than safe, in fact, it will increase.
More slow motion
Last Sunday we discussed how the economic effect of rate hikes is moving in slow motion. This week delivered more evidence as we saw strong retail sales numbers in the U.S. From that Yahoo!Finance post …
Following the release, several Fed officials indicated interest rates would need to go higher. On Tuesday, Dallas Fed President Lorie Logan said in remarks at Prairie View A&M University in Texas that the U.S. central bank “must remain prepared to continue rate increases for a longer period than previously anticipated.”
The theme of ‘higher for longer’ is another framing of the rate hikes working at a snail’s pace. And inflation is sticky. For the U.S. …
CPI rose 0.5% in the first month of the year, an acceleration from the prior month, and 6.4% on an annual basis, a small move lower from the previous year-over-year print. Core CPI, which strips out the volatile food and energy components of the report, climbed 0.4% over the prior month and 5.6% year-over-year, also higher than forecast.
Stocks have softened modestly over the last 2 weeks. Bond prices have softened even more as the market sniffs out the possibility of higher rates in the near future. In Canada, the bond market is down by 3% over the last month.
And while we’re moving in slow motion, there are cracks developing. Lance Roberts spots another recession signal as consumers struggle to pay the bills. You’ll see some ‘chart support’ in that post on credit card debt and more.
Rate pivots and market direction
While no one knows what will happen. I am a fan of consulting market history. As always, be prepared. And look at the thread and you’ll see that the trend is not perfect. Inflationary environments can be unique. I offered a counter-tweet chart in the thread of this tweet.
More Sunday Reads
Banker on Wheels offers a more worldly and comprehensive mix of reads and podcasts from around the globe.
Of course, the RRSP deadline is approaching; it is March 1 to make a contribution that you can apply to your 2022 tax return. That is a wonderful retirement program, and you truly can’t have too much say many advisors and financial planners. I’d beg you to consider dropping your high-fee mutual funds, if there are any readers still trapped in those wealth-destroying traps, and consider:
An all-in-one asset allocation ETF.
Of course you can also build your own stock portfolio, or go hybrid with a mix of stocks and ETFs.
And on the cash front …
On Tawcan, Bob offers 5 stocks he’s looking to buy in 2023. You won’t find a word of argument from me 🙂
At Money Maaster Jordan gets a new high with his dividend and portfolio report for January. And Jordan is shifting the life gears, somewhat …
Going forward, the plan is to actually invest LESS. I will continue to max out both TFSA’s each year and put a bit of cash bi weekly into our RRSP, but now that I’ll be FORTY this year, I want to start working on getting the house paid off, and slowly getting portfolio built more for retirement in the 5-10 years. I also want to start spending a bit more on things like travel, and entertainment, nights out with the family and friends, and other cool experiences.
I like that plan. I’ll admit to investing heavily in my early 30’s and then shifting to cruise control. Family and life and health became the focus. I often moved to freelancing and consulting and there were many Summers of sailing in the mix. We reached our financial goals while family and health took priority.
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