Stocks have taken a nasty tumble over the past couple of months on fears of slowing global growth. Those concerns have also weighed on oil prices, which quickly tumbled into bear market territory. That slump in crude has hit oil stocks hard, including pipeline companies, even though they are largely immune to that volatility since fee-based contracts back the bulk of their cash flows.
Because of this disconnect, investors can scoop up some great bargains in the pipeline sector these days. Three of the cheapest are Enbridge (NYSE: ENB), Kinder Morgan (NYSE: KMI), and Plains All American Pipeline (NYSE: PAA). That makes them great buys this month, especially considering what they have coming down the pipeline in 2019.
Losing value even though it's outperforming
Shares of Enbridge have fallen more than 20% from their high for the year and currently sell for around $32 apiece and yield 6.3%. That slump comes even though Enbridge has made excellent progress on its strategic initiatives this year. Not only did the company sell more noncore assets than planned, which shored up its balance sheet, but it's on pace to achieve the upper end of its cash flow forecast of $3.12 to $3.34 per share. That means shares of the Canadian oil pipeline giant sell for less than 10 times cash flow. For comparison's sake, most rivals fetch more than 11 times cash flow, with several trading at a multiple in the mid-teens.
One reason cash flow is coming in toward the top of Enbridge's outlook is that it made excellent progress on its growth plan. Overall, the company expects to finish 7 billion Canadian dollars ($5.3 billion) of expansion projects this year and should finish another CA$15 billion ($11.3 billion) by 2020. That puts it on pace to grow cash flow per share at a 10% compound annual rate over that time frame, which should support a similar pace of dividend growth. That growth and income for a value price make Enbridge look like a steal these days.
It just keeps getting cheaper
Kinder Morgan's stock has fallen about 15% from its high and now sells for around $17 per share and yields 4.8%. That sell-off comes even though Kinder Morgan has also made excellent progress on its strategic plan for the year. The pipeline giant sold some assets, which put its balance sheet in its strongest position in years. Meanwhile, the company's financial results have come in ahead of expectations this year, which puts it on pace to beat its forecast of $2.05 per share in cash flow. That implies shares trade for an absurdly low value of around eight times cash flow.
Cash flow should continue expanding next year, because the company expects to complete two needle-moving projects. Those expansions, along with the improvement in its balance sheet, will enable the company to boost its dividend 25% in both 2019 and 2020, implying investors could lock in a more than 7% yield for 2020 at the current price. That makes now a great time to buy with the long term in mind.
Just about to reaccelerate
Plains All American Pipeline has slumped about 20% from its recent high and now trades for around $22 and a 5.5% yield. Again, that lower price comes even though the company has outperformed its plan in 2018. Thanks to its stronger-than-expected results so far this year, Plains All American is on pace to produce $2.25 per share in cash flow, implying that it sells for less than 10 times cash flow. Meanwhile, the oil pipeline giant has made excellent progress on its plan to improve its balance sheet, expecting to hit its leverage target early next year.
Once Plains All American achieves that goal, it will be in the position to start increasing its dividend once again. With earnings set to rise by at least a double-digit rate next year as it completes some new oil pipelines, the company could easily afford to boost its payout at a similar pace. Meanwhile, with the pipeline company working on securing several additional expansion projects, it could grow earnings and its dividend at a fast pace in the coming years. That combination of income and upside potential for a cheap price makes Plains All American a great stock for 2019 and beyond.
Get paid well while you wait for a rebound
Enbridge, Kinder Morgan, and Plains All American Pipeline all trade for absurdly low prices of less than 10 times this year's cash flow and are even cheaper considering that cash flow will rise in 2019. Because of those low prices, all three offer high-yielding dividends that pay investors well as they wait for these pipeline stocks to rebound. That's why they make great options for value investors to consider buying this month.
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