Fortis (TSX:FTS) and Enbridge (TSX:ENB) trade well off their 12-month highs. Investors seeking reliable dividends are wondering if FTS stock or ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on passive income or total returns.
Fortis
Fortis is a good stock to buy if you like the security of reliable and predictable cash flow that comes from rate-regulated utilities. The company has $64 billion in assets across Canada, the United States, and the Caribbean. Businesses include power-generation facilities, electric transmission networks, and natural gas distribution utilities.
Fortis is working on a $22.3 billion capital program that will increase the rate base from $34.1 billion to $46.1 billion over five years. The resulting jump in cash flow is expected to support planned annual dividend hikes of 4% to 6% through at least 2027. Fortis has other projects under consideration that could get approved and boost the size of the dividend increases or extend the rate-hike outlook. The company also has a good track record of driving growth through acquisitions.
Fortis trades near $56.50 at the time of writing compared to $61 in May.
The stock picked up a nice tailwind over the past week, and more gains could be on the way. Fortis has increased its dividend in each of the past 49 years. Investors who buy the stock at the current level can get a 4% yield.
Enbridge
Enbridge also owns natural gas utilities, and that division is going to get a lot larger. The company recently announced deals to acquire three natural gas utilities in the United States. Once the acquisitions are closed, Enbridge will be the largest natural gas utility operator in North America.
The move is part of Enbridge’s plan to diversify the overall asset base. Enbridge is best known for its vast oil pipeline networks that carry 30% of the oil produced in Canada and the United States. These assets will remain important drivers of revenue, but Enbridge’s recent investments are focused on oil exports, natural gas exports, natural gas utilities, and renewable energy.
Enbridge trades near $47 per share at the time of writing compared to $54 at this time last year and $59 at the 2022 high. Management is targeting growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) of about 5% per year over the medium term. This should support ongoing dividend growth. Enbridge increased the payout in each of the past 28 years. Recent annual increases have been around 3%.
At the time of writing, ENB stock provides a yield of 7.5%.
Is one a better pick?
Enbridge offers a much higher yield and is likely more oversold right now compared to Fortis. As such, I would probably make the energy infrastructure giant the first choice for a portfolio focused on passive income.
Fortis also looks cheap today and has a great track record of delivering attractive total returns for investors. At the current price, FTS stock deserves to be on your radar.
