Does Enbridge Inc. (TSX:ENB) or AltaGas Ltd. (TSX:ALA) Deserve to Be on Your Dividend Buy List?

Enbridge Inc. (TSX:ENB)(NYSE:ENB) and AltaGas Ltd. (TSX:ALA) look oversold. Is this the right time to own these stocks?

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Contrarian investors are always searching for beaten-up stocks that offer good value and ideally provide a juicy dividend yield.

Let’s take a look at Enbridge Inc. (TSX:ENB)(NYSE:ENB) and AltaGas Ltd. (TSX:ALA) to see if one is an attractive pick right now.

Enbridge

Enbridge is down amid a broad pullback in the energy infrastructure sector. The market is concerned rising interest rates will trigger a shift of funds out of go-to dividend names, such as Enbridge, and into fixed-income alternatives. Investors might also be looking at opposition to major pipeline developments and wondering where Enbridge will find long-term growth opportunities.

These are valid concerns for investors to consider when evaluating the stock, but the price drop from $51 a year ago to the current level of $42 might be overdone.

Why?

Enbridge is undergoing a strategy shift that will see the company focus on its core regulated businesses. As a result, management has identified $10 billion in non-core assets to be sold in the next few years. Buyers have already stepped up to acquire $3 billion of the portfolio in 2018.

Enbridge will use the net proceeds to reduce debt, shore up the balance sheet, and fund ongoing developments.

The company is working through $22 billion in near-term projects that should be completed through 2020. As a result, investors should see cash flow rise enough to support continued dividend growth.

Enbridge raised the payout by 10% for 2018 and has increased the distribution for 23 straight years.

The shares have already bounced 10% off the April low, but investors can still pick up a 6.4% yield.

AltaGas

AltaGas owns gas, power, and utility businesses in Canada and the United States. The company has grown over the years through a combination of organic projects and strategic acquisitions, and that trend continues.

The Townsend 2A and North Pine projects in British Columbia wrapped up late last year, and AltaGas is making good progress on its Ridley Island propane export terminal in the province. In addition, AltaGas is working through its $8.4 billion takeover of Washington, D.C.-based WGL Holdings.

The market is concerned AltaGas might be in over its head on the WGL deal, and that’s why the stock is down from $30 this time last year to the current price of $25 per share. AltaGas would like to sell some non-core assets to cover part of the purchase, but earlier efforts failed to entice a buyer at the right price.

AltaGas raised its dividend by 4% late last year, so management can’t be overly concerned about cash flow. The stock comes with some risk until the WGL deal gets settled, but the current dividend should be safe and provides a yield of 8.8%.

The bottom line

Contrarian investors might want to split a new investment between Enbridge and AltaGas to secure a 7.6% yield, with a reasonable shot at some nice upside when market sentiment shifts on these names.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of Enbridge. fool contributor Andrew Walker owns shares of AltaGas and Enbridge. AltaGas and Enbridge are recommendations of Stock Advisor Canada.

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