Enbridge (TSX:ENB) and TC Energy (TSX:TRP) have trended higher for much of the past year after taking big hits due to rising interest rates in Canada and the United States. Higher borrowing costs put pressure on profits and reduce cash for distributions or debt reduction.
As soon as the market sentiment shifted from fears of more hikes to anticipation of rate cuts, bargain hunters started to buy these TSX stocks. Investors who missed the rebound are wondering if ENB stock and TRP stock are still undervalued and good to buy for a self-directed portfolio focused on dividends and total returns.
Enbridge
Enbridge trades near $55.50 at the time of writing compared to $59 at the high point in 2022. The stock is up about 15% this year, pushing the trailing 12-month price-to-earnings (P/E) multiple to about 21.
Enbridge continues to grow through a combination of strategic acquisitions and internal projects. The company is finalizing the third part of its US$14 billion purchase of three natural gas utilities in the United States. The deals make Enbridge the largest natural gas utility operator in North America.
Enbridge’s oil pipelines remain important, but new investments have focused on other segments in recent years. Enbridge purchased an oil export terminal in Texas and acquired a wind and solar developer. These moves, along with the utility acquisitions, have diversified the revenue stream and positioned Enbridge to capitalize on emerging opportunities in the energy sector.
Demand for North American oil and natural gas is expected to rise as international buyers seek out reliable supplies in a world where geopolitical risks are high in key energy production regions. In the domestic market, the boom in the construction of artificial intelligence data centres is expected to drive demand growth for natural gas as a fuel for new power generation along with expansion of solar and wind facilities.
Enbridge is working on a $24 billion capital program. These investments, along with the boost from the new utilities, should support targeted growth in distributable cash flow of 3-5% over the next few years. Dividend increases will likely be in the same range.
Investors who buy ENB stock at the current level can get a dividend yield of 6.6%. The board has increased the payout for 29 consecutive years.
TC Energy
TC Energy trades near $63 at the time of writing compared to $74 at the peak in 2022. The stock is up 20% in 2024 and now trades for close to 19 times trailing 12-month earnings.
Soaring costs on the 670 km Coastal GasLink pipeline project forced TC Energy to take on extra debt. This didn’t sit well with investors, who were already concerned about the impact of rising interest rates. As a result, TRP stock slipped as low as $45 last year.
Coastal GasLink reached mechanical completion in late 2024 at a cost of about $14.5 billion, which is more than double the original budget. Management has done a good job of monetizing some non-core assets to reduce the debt load. Coastal GasLink also completed a $7.15 billion bond sale to refinance loans taken to get the project finished. The asset is expected to go into commercial operation in 2025 and will be key for natural gas producers in Canada to get their product to a new liquified natural gas (LNG) export facility being built in British Columbia.
TC Energy’s ongoing capital program is targeted at $6-$7 billion per year over the medium term. Cash flow growth should support steady dividend increases in the 3-5% range. TC Energy raised the dividend in each of the past 24 years.
Investors who buy TRP stock at the current level can get a dividend yield of 6%.
Is one a better pick
Enbridge offers a slightly better dividend yield right now and tends to be less volatile. TC Energy, however, trades at a cheaper multiple and likely has better upside potential over the medium term. Dividend growth will probably be similar for the two stocks in the next few years.
If you simply want the highest yield for an income portfolio, Enbridge looks good. Otherwise, I would probably split a new investment between the two stocks right now.
