The early July explosion of train cars carrying crude oil in Canada quickly turned into a disaster. It also exposed the risks of the increasing use of trains to transport oil. Although pipelines have their own risks, the fallout from this event will help support growth at pipeline giants like Enterprise Products Partners L.P. (NYSE:EPD), Kinder Morgan Energy Partners LP (NYSE:KMP), and TransCanada Corporation (USA) (NYSE:TRP).
Oil and natural gas drilling is a messy business. And once the commodities are out of the ground, they have to be moved to someplace that can process them. There are any number of ways that can happen, but one of the most reliable is by pipeline. It’s a boring, toll taker business that requires large investments of time and money to build.
For example, TransCanada Corporation (USA) (NYSE:TRP) has been trying to complete its KeystoneXL pipeline for years. The U.S. government has basically been withholding approval. The pipeline would bring oil from Canada’s oil sands region down to the U.S. Gulf Coast where it would be used as feedstock for refineries and reduce the country’s dependance on Middle East oil.
Environmental concerns are behind the red tape stopping progress. However, the current administration looks increasingly likely to push it through. The rail mishap should help justify that to the green lobby trying to stop the pipeline’s progress.
Bigger than Keystone
TransCanada Corporation (USA) (NYSE:TRP) is actually a pretty compelling investment option with or without Keystone. It’s a large pipeline player in Canada that has been diversifying its pipeline business beyond a focus on natural gas. It also has an electric utility business that notably diversifies its portfolio.
The nature of its pipelines business makes the top- and bottom-lines somewhat variable, but dividends have headed generally higher for a decade. The lone drop occurred during the 2007 to 2009 recession and was quickly reversed the next year.
The company’s shares have come down over the last few months as investors have shifted out of income stocks, increasing its appeal. And, if Keystone gets approved, the company’s growth potential only looks better. TransCanada Corporation (USA) (NYSE:TRP) is a solid broad-based energy play.
That said, the company isn’t a limited partnership (LP), so it can be purchased in a retirement account without running afoul of tax rules. The around 3.9% yield is among the lowest in the pipeline sector, but is still worthwhile.
A U.S. Giant
Enterprise Products Partners L.P. (NYSE:EPD) is among the largest LPs in the pipeline space. Its operations span The United States and touch on just about every aspect of the midstream business. At $42.5 billion, the company’s top line dwarfs TransCanada Corporation (USA) (NYSE:TRP)’s business.
Enterprise Products Partners L.P. (NYSE:EPD) has grown rapidly through acquisition and internal expansion projects, rewarding unitholders with years of regular dividend increases. The distribution has increased from around $1.40 a unit to over $2.50 over the past decade with increases often taken place every quarter.