I am looking at adding another dividend name to my RRSP portfolio. I already own ENB, TRP, and PPL in the energy infrastructure space, and am thinking of starting a position in Williams Companies. It has a lower yield than the other three at present, but how does it compare in terms of valuation (P/E, debt ratios, etc.) Is it a "safer" investment than the other three? Given that it's nearly impossible to build a new pipeline in Canada anymore, does it have a better future?
Much appreciated,
Brian
The pipelines are certainly very valuable assets to own over time, as it is hard to create alternative ones. However, the assets do require lots of capital to maintain and expand. WMB is trading at 20.7x Forward P/E, net debt/EBITDA is around 3.8x. The company focuses on growth through capital investment and acquisitions, and EBITDA grew around 11% on average in the last five years.TRP is trading at 12.2x Forward P/E, net debt/EBITDA currently around 6.4x, the company leverages quite heavily to maintain dividends while reinvesting most of the cash flow back to grow the business, but EBITDA grew around 5% compounded annually in the last five years. Lastly, ENB is trading at 17x Forward P/E, the company is paying healthy and growing dividends, net debt/EBITDA of around 5.6x, EBITDA also grew around 6% in the last five years. So WMB is more expensive, but growing faster, and does operate in a 'better' environment overall. We would be fine adding it, with the consideration of course that there is no dividend tax credit.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in WMB.