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Martin Tillier

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A Classic Dividend Play That Comes At A Discount

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Maybe it is just the rose-colored glasses with which we look backwards, but it seems to me that there was a time when investing in energy stocks was a lot simpler. The reason was simple: mature companies in the sector generally paid high dividends, and over time a payout in the high single digits smoothes a lot of bumps. High dividends either makes a positive return extremely likely or provide a good source of income to spend or invest elsewhere. Those days, however, are gone. Ten years of ultra-low interest rates in response to the recession and the collapse of oil a few years ago have affected even the normally dividend rich energy sector and yields have fallen precipitously.

Even so, occasionally a dividend paying stock gets hit so hard that the yield climbs to an attractive level. When that happens, investors must decide whether the decline in the stock is potentially terminal or whether it is temporary or cyclical. If the latter, then the dividend payout gives some room to wait for the turnaround and acts as a hedge against the position.

That is the case right now with the pipeline company Trans Canada Corp. (TSX: TRP; NYSE: TRP).

(Click to enlarge)

TRP has, as you can see, had a miserable 2018 so far. That is as a result of a perfect storm of issues. Obviously, the big drop in natural gas prices since the beginning of February hasn’t helped the firm’s prospects but they have also had company specific problems. The now infamous…

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