Can you comment on the outlook for South Bow Corp. (SOBO), and whether its high dividend is sustainable? I’ll address the dividend in a moment. First, a little background about the company. South Bow was spun off by TC Energy Corp. (TRP) and began trading as a separate company on Oct. 1, 2024. (Disclosure: As a TC Energy shareholder, I received South Bow shares, which I continue to hold.) The Calgary-based company’s main asset is the Keystone Pipeline system, which transports roughly 600,000 barrels of crude oil per day from Alberta to refineries and storage facilities in Illinois, Oklahoma and the U.S. Gulf Coast. For income-oriented investors, South Bow is attractive for several reasons. Its 4,900 kilometres of pipelines are an integral part of North America’s energy infrastructure, and with about 90 per cent of cash flow tied to long-term contracts, revenues are relatively stable and predictable. What’s more, pipelines in general are largely insulated from changes in the prices of the energy they carry, which further limits earnings volatility. Despite these strengths, the stock price has been choppy. In the weeks following the spinoff, the shares posted double-digit gains. Since then, however, they have retreated amid tariff fears, slightly weaker-than-expected 2025 guidance and a spill this month that released roughly 3,500 barrels – about 556,000 litres – of oil onto farmland in North Dakota. South Bow has since reopened the pipeline after major sections were closed for about a week. For prospective investors, the slide in South Bow’s share price has a silver lining: The dividend yield has risen to more than 8 per cent as of Friday afternoon. But given such an outsized yield, investors are right to question whether South Bow’s quarterly dividend of 50 US cents – or US$2 on an annualized basis – is safe. Analysts say the dividend is sustainable. However, because of South Bow’s already high payout ratio, they don’t expect the dividend to increase any time soon. In a recent note to clients, analyst Maurice Choy of RBC Dominion Securities pegged South Bow’s payout ratio at 124 per cent of estimated 2025 earnings, falling to 103 per cent in 2026. Based on distributable cash flow (DCF), the payout ratios are a more manageable 78 per cent and 68 per cent, respectively. (DCF measures cash generated by the business and is based on earnings before income taxes, adjusted for depreciation, amortization and other items.) “Despite the elevated payout ratio, we view the dividend as sustainable, with the potential for an increase near the end of the decade,” said Mr. Choy, who has an “outperform” rating and $38 price target on the shares. South Bow closed at $34.52 on the Toronto Stock Exchange on Friday. Other analysts have mixed views of the stock, with two buy recommendations, two sells and seven holds, according to Refinitiv data. The average 12-month price target is $33.89, indicating that most analysts see little or no growth in the share price over the next year. Before you take the plunge, there are a couple of other risks to keep in mind. One is that the company is heavily dependent on Keystone, with about 95 per cent of EBITDA (earnings before interest, taxes, depreciation and amortization) coming from its flagship asset in 2024. Such concentration poses a danger if the competitive landscape changes or the pipeline suffers operational challenges, as the recent spill illustrated. A second risk is South Bow’s net debt load of about US$4.9-billion (as of Dec. 31). The company has said it expects to end 2025 with a debt-to-EBITDA ratio of about 4.8, which is on the high side, but that its goal is to reduce leverage to 4.0 times by about 2028. “In addition to paying a sustainable dividend with an attractive yield, we are keenly focused on strengthening our investment grade financial position,” Bevin Wirzba, South Bow’s president and chief executive officer, said on the fourth-quarter earnings conference call in March. “It’s very important for us as we mature our business to maintain a strong balance sheet and we see that as also accretive to the equity investor.” As always, do you own due diligence before investing in any security, and be sure to diversify your holdings to control your risk. If I’m sitting on a large unrealized capital gain in an open account, could I purchase some additional shares to raise the average cost, wait a few days for the transaction to settle and then sell the entire holding? My goal would be to decrease the capital gains tax bill. That’s not going to reduce your capital gains bill, unfortunately. Consider the following example. Say you bought 100 shares of GetRichQuick Inc. for $25 each two weeks ago, at a total cost of $2,500. After a bullish analyst’s report, the share price doubled to $50, for a total market value of $5,000. You now have an unrealized capital gain of $25 a share, or $2,500 in total. Now, let’s say you want to reduce the capital gains tax hit when you sell, so you purchase another 100 GetRichQuick shares at the current price of $50. This would raise your total cost, to $7,500 (the initial $2,500 plus $5,000), and increase your average cost per share to $37.50 ($7,500/200). This looks promising, you think. You’ve raised your average cost to $37.50 from $25, so when you sell you won’t have to pay as much capital gains tax, right? Sadly, no. You now have 200 shares of GetRichQuick worth $50 each. Selling them would give you proceeds of $10,000. If you subtract your total cost of $7,500 from the $10,000 in sale proceeds, you would have a realized capital gain of $2,500. This is the same capital gain as if you had simply sold your original 100 shares without buying any additional shares. With investing, if something seems too good to be true, it usually is. E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.