June 14, 2023 [Yahoo!]- Enbridge (TSX:ENB) and TC Energy (TSX:TRP) are key players in the North American energy infrastructure industry. The stock prices are off their 12-month highs, and investors seeking high dividend yields are wondering if one is oversold today and good to buy for a self-directed portfolio focused on passive income.
Enbridge is a giant when it comes to moving oil from producers to storage sites, refineries, or export terminals. The vast network of pipelines transports almost a third of the oil produced in Canada and the United States.
Enbridge realizes that it is nearly impossible to get new large oil pipeline projects approved and built, so the company is directing new capital outlays and investments to other opportunities. Enbridge spent US$3 billion to buy an oil export terminal in Texas in 2021. The company is also a partner on the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia.
International demand for North American oil and natural gas is on the rise due to market disruptions caused by the war in Ukraine. In addition to the Canadian LNG project, Enbridge is building new natural gas pipeline infrastructure to bring the fuel to LNG terminals in the United States. At the same time, Enbridge continues to expand its renewable energy portfolio that includes solar, wind, and geothermal assets in North America and Europe. Natural gas utility assets round out the portfolio.
Enbridge trades near $50 per share at the time of writing. That’s off the recent low but still down about $9 from where the stock traded in early June last year.
Enbridge reported first-quarter (Q1) 2023 results that pretty much matched the same quarter last year. Management reconfirmed guidance for the year with growth projected in both adjusted earnings per share and distributable cash flow. As a result, investors will likely get another dividend boost for 2024.
Enbridge raised the payout in each of the past 28 years. At the current share price, the stock provides an annualized yield of 7%.
Efforts to shut down Enbridge’s Line 5 pipeline are ongoing in Michigan and Wisconsin. It is unlikely that the asset would be shut off due to its critical role in supplying fuel to both Canada and the United States, but investors need to keep the risk in mind.
TC Energy owns oil pipelines and power production facilities, but the bulk of the more than $100 billion in assets is focused on natural gas transmission. The company has roughly 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage in Canada, the United States, and Mexico.
TC Energy stock trades near $54 at the time of writing compared to the 2022 high around $74. The pullback occurred as part of the broader decline in the energy sector over the past year. However, TC Energy has also had some company-specific issues. The firm’s Coastal GasLink pipeline will eventually bring natural gas from producers in northeastern British Columbia to a new LNG facility being build on the B.C. coast.
Pandemic delays, rising material and labour expenses, challenging weather conditions, and disagreements with contractors have all contributed to a steep rise in the cost of the project. In fact, the pipeline is expected to cost at least $14.5 billion before it is done. That’s more than double the original budget.
On the positive side, the project was 87% complete as of the Q1 2023 earnings report, so the worst should be over for investors on this development. Management still expects the overall $34 billion capital program to drive revenue and cash flow growth in the coming years. Dividend increases of at least 3% per year are projected over the medium term.
At the time of writing, TC Energy stock provides a 6.8% dividend yield.
Is one a better stock to buy today?
Enbridge and TC Energy both pay attractive dividends that should continue to grow at a similar pace. Investors purely seeking the highest yield should make Enbridge the first choice. TC Energy, however, likely has better upside potential on a rebound. A good compromise would be to split a new investment between the two stocks today.
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