Enbridge: My top pick among the pipelines.

I am putting together a wish list for my ideal retirement portfolio. I am guessing the Canadian economy will slow before the end of year and give me a nice buying opportunity. I want to be ready.

Pipelines are high on my list of must-have investments. About four years ago Morningstar had an article by Michael O'Brien, vice-president and director at TD Asset Management Inc. He said Canadian pipeline stocks offer good, solid earnings growth, minimal volatility and healthy dividend increases. It would be hard to find anyone to disagree.

I have a good feeling about Enbridge (ENB). I own it. I also own some TC Energy (TRP), some Pembina (PPL) and some South Bow (SOBO). O'Brian called Enbridge the "poster child" for the pipeline industry in Canada. One measure of its desirability is its low DCF -- distributable cash flow.

What is DCF, you ask. The Law Insider says distributable cash flow is the cash flow available for distribution to shareholders as dividends. There's more to it, of course, but this is all you need to know for now.

Most of us are familiar with the payout ration. It is easy to find and often used to assess whether of not a dividend is secure. The payout ratio is the percentage of a company's earnings distributed to shareholders as dividends. On the surface, both the payout ratio and the distributable cash flow seem similar and they are but the DCF is used when assessing pipelines and utilities. For more on this, see my post: When Dividend Investing, the Payout Ratio Does Not Tell the Whole Story.

Pembina has a DCF of about 74%. This is still within a reasonable range for the industry. TC Energy has a DCF of almost a 100%. TC Energy is a well respected pipeline company. It is hard to be worried when investing in TC Energy. Yet, a payout above 80% does raise a red flag.

One should not ignore TRP; it is a successful, long-term player. Still, I am making Enbridge my biggest investment in the pipeline sector. The number two spot goes to TRP. All in all, I have decided to invest 15% of my retirement portfolio in pipelines with 5.25% going to Enbridge, 3.75% to TC Energy, 2.25% going to both Pembina and Keyera and 1.5% going to South Bow. Over time I may invest more in SOBO, but at the moment, it is too new to be a dominant player in  a retirement portfolio.