1 Great Dividend You Can Buy Right Now

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to take a look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. For reference, here is last week's selection.

This week, I'm going to dive right into the natural gas pipeline sector and take a closer look at TC Pipelines (NYSE: TCP  ) .

The perfect storm
While the market indexes have been making a break for it over the past few weeks, I can't help but feel a little skeptical about the rally. Stocks appear to be in far better fundamental shape than they were five years ago, but the possibility of an economic hiccup remains in the forefront thanks to continued weakness in Europe. With that being said, I tend to prefer the comfort of businesses that will give me fairly predictable levels of cash flow through thick and thin. TCP fits that bill perfectly.

TCP, which is operated as a master-limited partnership, owns and operates natural gas transmission pipelines in both the United States and Canada. Yes, you already know I have a love-fest going with natural gas at these decade-low prices, and this is just another aspect of how natural gas can make you money over the long-term.

Unseasonably warm weather conditions hampered TCP in its most recent quarter, with its Great Lakes equity income falling 31% and its Northern Border region ticking in with a modest 2% decline in equity income. The company's other segments, which includes Gas Transmission Northwest and the Bison pipelines, purchased from parent TransCanada (NYSE: TRP  ) in 2011, actually showed income growth.

All in all, these results were fairly good considering the perfect storm of lower natural gas prices and unseasonably warm weather. This proves to me that no matter how bad natural gas spreads get, TCP will always be able to deliver profits to its bottom line.

This stock's a gas come dividend time
The real story with TCP is its consistent cash flow which fuels what is currently a dividend yield north of 6%. TCP has generated 12 straight years of increasing dividend distributions and grew cash flow by 12% in 2011 if you exclude the one-time $20 million cash distribution for obtaining GTN. Take a gander at TCP's slow but steady dividend increases over the past decade:


Source: Dividata.

The key to TCP's success is its ability to generate long-term contracts along its 5,550 miles of pipeline. With many of these contracts negotiated well in advance, even poor natural gas spreads will yield investors a fairly consistent dividend.

And it's not just that TCP excels by offering a solid dividend and a trailing P/E of just 15 -- it's that these figures are traditionally much better than the industry average. TC has consistently yielded a full 3% more than the average company in the natural gas transmission sector over the past five years while trading at a price-to-book that's roughly half the industry average.

Company

Price/Book

P/E Ratio

Dividend Yield

TC Pipelines 1.8 15 6.7%
Kinder Morgan (NYSE: KMI  ) 8.7 52.9 2.9%
Williams Partners (NYSE: WPZ  ) 3.5 16 5.0%
ONEOK Partners (NYSE: OKS  ) 3.4 16.9 4.2%

Source: Dividata.

Based on revenue alone, TC Pipelines is a relative small fry. But it boasts a lower debt/equity ratio than Kinder Morgan, Williams Partners, or ONEOK. You'll also notice Kinder Morgan, Williams, and ONEOK are pricier on a book and P/E basis while offering a lower yield, despite the fact that they are considerably larger businesses. Now, don't take this as a sell recommendation for these three because I actually happen to like Kinder Morgan and ONEOK a lot. But you should see just how underappreciated TC Pipelines is relative to the group.

Foolish roundup
Mother Nature may be unpredictable, but TC Pipeline's profits are becoming as predictable as the rising of the sun. Natural gas prices seem almost certain to rebound from these decade lows at some point over the next few years and, when they do, TCP's dividend could soar through the roof.

If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!

Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of ONEOK Partners and TransCanada. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always loves a free payout.


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