Shares of Canada-based energy infrastructure company TC Energy (TSX:TRP) have returned just 81% in the last two decades. However, after adjusting for dividend reinvestments, cumulative returns are much higher at 348%. Comparatively, the TSX index has returned close to 400% in dividend-adjusted gains since May 2004.
While the TSX index trades close to all-time highs, TC stock is down more than 35% from record levels. Due to the recent pullback in share prices, TC Energy stock trails the TSX index by a small margin.
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Is TC Energy stock a good buy right now?
Debt-heavy companies across sectors have trailed the broader indices in the last two years due to rising interest rates and inflation. However, with $123 billion in total assets, TC Energy is a well-diversified midstream giant that continues to grow at a steady pace. For instance, it is expected to spend $32 billion in capital expenditures through 2028, which should drive future earnings higher.
While TC Energy is part of a cyclical sector, around 95% of its comparable EBITDA (earnings before interest, tax, depreciation, and amortization) is tied to rate-regulated assets or inflation-linked long-term contracts, sheltering the company from fluctuations in commodity prices.
A steady base of cash flows allows TC Energy to pay shareholders an annual dividend of $3.84 per share, translating to a tasty yield of 7.8%. Further, TC Energy has grown these payouts by 6.8% annually in the last 24 years, which is exceptional for an energy stock.
TC Energy’s investments in organic growth should allow the energy heavyweight to increase dividends between 3% and 5% annually in the near term, showcasing the resiliency of its cash flows.
In 2023, TC Energy announced plans to spin off its businesses and create two premium energy infrastructure companies, which might unlock additional value for shareholders.
TC Energy will operate segments such as natural gas pipelines, storage, and power, while its liquids pipeline and storage business will be part of a new entity called South Bow. In its press release, TC Energy emphasized that the two businesses will maintain the combined entity’s existing dividend.
TC Energy explained that its unified natural gas business offers it a utility-like profile and a competitive moat as it delivers one-fourth of North America’s natural gas demands. The company expects this business to grow EBITDA by 7% annually through 2026, which should drive further dividend hikes. Comparatively, South Bow’s EBITDA is forecast to grow between 2% and 3% each year.
Why I’m bullish on Enbridge stock
While TC Energy remains a compelling investment, I believe Enbridge (TSX:ENB) is a better TSX dividend stock right now. Down 25% from all-time highs, ENB stock also offers you a tasty forward yield of 7.5%. Further, these payouts have risen by roughly 10% annually in the last 29 years.
Similar to TC Energy, Enbridge’s cash flows are predictable across market cycles, allowing it to navigate an economic downturn with relative ease. With a payout ratio of less than 70%, Enbridge has the flexibility to grow via acquisitions and lower balance sheet debt, both of which should drive future cash flows higher.
Additionally, Enbridge is in the process of acquiring three natural gas utilities from Dominion, which should further enhance the durability of these cash flows. Priced at 16 times forward earnings, ENB stock trades at a discount of 10% to consensus price target estimates. After adjusting for dividends, total returns will be closer to 17%.
