Enbridge (TSX:ENB) and Canadian Natural Resources (TSX:CNQ) are TSX giants in the energy sector. The recent pullbacks in the prices of ENB shares and CNQ shares have investors wondering which stock might be undervalued today and good to buy for a portfolio focused on dividends.
Enbridge
Enbridge owns oil pipelines, an oil export terminal, natural gas pipelines, natural gas storage facilities, natural gas utilities, and renewable energy assets. The company is also a partner in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia and has interests in hydrogen and carbon-capture projects.
With a market capitalization of $99 billion, Enbridge has the financial clout to make strategic acquisitions to drive growth alongside the current $17 billion secured capital program. Management expects earnings to grow by at least 4% through 2025 and by 5% beyond that timeframe. Distributable cash flow (DCF) is expected to increase by at least 3% per year. This means the board will likely extend the 28-year streak of dividend increases.
Enbridge trades near $49 per share at the time of writing. The stock is down from $59.50 last June.
Investors who buy the latest dip can pick up a 7.25% dividend yield.
Canadian Natural Resources
CNRL (TSX:CNQ) is Canada’s largest oil and natural gas company with a current market capitalization of close to $84 billion. The stock price soared off the market crash in 2020 and is now about double where it was before the pandemic.
CNQ took advantage of the cash windfall in 2021 and 2022 to pay down debt and buy back stock. The board also gave investors big increases to the base dividend and even shelled out a generous $1.50 per share bonus dividend in August last year.
Oil and natural gas prices are down from the 2022 highs, but CNRL continues to generate strong profits. The base dividend currently provides a 4.75% dividend yield.
Demand for Canadian natural gas is expected to soar in the coming years, as LNG facilities now under construction in British Columbia go into service to supply liquified natural gas to international markets. CNRL has vast natural gas resources in key areas in Western Canada and is positioned well to benefit.
Demand for oil is expected to continue its recovery, as well. Airlines are ramping up orders for new planes to meet the rebound in travel demand. This will support demand for jet fuel. At the same time, millions of office workers are starting to head back to their desks for two or three days per week. This is going to push up gasoline demand. Many are choosing to drive to work instead of taking public transit, which would have been their mode of transport before the pandemic.
CNRL increased its dividend in each of the past 23 years with a compound annual growth rate of better than 20% over that stretch. This is an impressive track record for a business that relies on commodity markets to determine the price it gets for its products.
Is one a better pick today?
Investors who like the reliability of the revenue stream that comes from pipeline and utility assets might want to make Enbridge the first choice today. It’s tough to argue with a 7% dividend yield and nearly three decades of annual dividend growth.
Energy bulls who can handle more volatility should keep CNQ on the watch list and look to buy on any new dips. The company likely has better dividend-growth prospects than Enbridge and potentially more upside torque in the share price if oil and natural gas prices move materially higher.
