South Bow - whose ticker SOBO will shortly be listed on MarketScreener- owns and operates one of the world's most strategic infrastructures: the 4,900km of oil pipelines that link the northern Alberta production basin to the Gulf of Mexico, crossing the Midwest and Texas and their two major refining hubs.
Every day, 1.25 million barrels pass through the South Bow pipelines, which also offer their customers - another unique and non-reproducible infrastructure - a storage capacity of 7.6 million barrels. Combined, this represents the backbone of the North American continent's energy sovereignty.
While there is little growth to bank on, cash flows are stable and virtually guaranteed by long-term contracts. In line with this profile, South Bow will distribute a basic dividend of CAD $2.75 per share and maintain a net debt level equivalent to five times EBITDA - a high level, but typical of the pipeline sector.
Before recovering, and no doubt under selling pressure from index funds or TC Energy shareholders unwilling or unable to hold South Bow shares, the share price fell in the wake of its IPO to $28.5, for a dividend yield of 9.6%.
That's not bad news, especially in a context of falling long-term interest rates. A direct comparable like Enbridge, for example, is valued at 6.6% dividend yield. In the USA, Kinder Morgan is valued at 5% dividend yield. Both of these companies have higher debt levels than South Bow.
The stock's trading should therefore be closely monitored.
