Enbridge (TSX:ENB) and BCE (TSX:BCE) are down significantly over the past year amid a market correction in high-yield dividend stocks that has hit energy infrastructure and communications stocks quite hard. Investors who missed the rally off the 2020 market crash are wondering if ENB stock or BCE stock is now undervalued and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) portfolio.
Enbridge
Enbridge operates extensive networks of oil pipelines across Canada and the United States that transport about 30% of the oil produced in the two countries. This makes the company’s assets strategically important for the efficient operation of the North American economy. Getting new large oil pipelines approved and built is difficult these days, if not impossible. As such, the existing infrastructure should increase in value.
Enbridge’s natural gas infrastructure moves 20% of the natural gas used in the United States. In Canada, the company’s natural gas utilities distribute the fuel to millions of homes and businesses.
Domestic and global oil demand is expected to remain strong in the coming decades, even as the world shifts to renewable energy. Enbridge purchased an oil export terminal in Texas in 2021 to benefit from rising international demand for North American oil. Natural gas demand is also expected to be robust as utilities switch to the fuel from oil and coal to produce electricity. Enbridge is a partner in the Woodfibre liquified natural gas (LNG) export terminal that is being built in British Columbia.
In addition, Enbridge is befitting from the transition to green energy. Its renewable energy division has solar, wind, and geothermal assets in North America and Europe. Enbridge is one of the partners on a large offshore wind project in France.
Enbridge is forecasting growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2023. The stock looks oversold at this point, given the positive outlook.
Investors who buy ENB stock at the current level can get a 7.7% dividend yield. The board increased the dividend in each of the past 28 years.
BCE
BCE raised its dividend by at least 5% in each of the past 15 years. At the current share price below $55, investors can get a 7% dividend yield.
BCE gets most of its revenue from its mobile and internet subscription services. Residential and commercial customers need to stay connected to the world, regardless of the state of the economy, so the core revenue stream should hold up well during a recession.
BCE expects total revenue to increase in 2023 compared to last year, even as the media group struggles with a downturn in advertising spending in the television and radio segments. High interest rates will drive up borrowing costs this year and that will put a dent in profits, but free cash flow is still projected to grow. As a result, investors should see another decent dividend increase for 2024.
Is one a better RRSP pick?
Enbridge and BCE are leaders in their industries and pay attractive dividends that should continue to grow. At the current share prices, I would probably split a new investment between the stocks. ENB and BCE both look cheap right now and should deliver decent total returns for patient RRSP investors.
