The Motley Fool

1 of These Dividend Stocks Is a Stronger Buy

Dividend investing is a great way to earn consistent income while watching your stocks appreciate over time. Which of Enbridge (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP)(NYSE:TRP) stock is a better buy today? Let’s compare the two in a number of ways.

Dividend track record

A strong dividend track record demonstrates the company’s commitment to paying dividends. Both Enbridge and TransCanada are among the top 15 Dividend Aristocrats in Canada.

ENB stock has paid a dividend for more than 64 years. Additionally, it has increased its dividend per share for 23 consecutive years with three-, five-, and 10-year dividend-growth rates of 13%, 16.3%, and 15.1%, respectively. Its quarterly dividend of $0.738 per share is 10% higher than it was a year ago.

TRP stock has increased its dividend per share for 18 consecutive years with three-, five-, and 10-year dividend-growth rates of 9.9%, 8.4%, and 6.7%, respectively. Its quarterly dividend of $0.75 per share is 8.7% higher than it was a year ago.

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Current yield and dividend growth

Currently, Enbridge offers a yield of 6.2%. Its payout ratio is estimated to be about 66% of its distributable cash flow this year based on the midpoint of the company’s distributable-cash-flow-per-share guidance of $4.30-4.60.

The ratio is close to the company’s targeted payout ratio of less than 65%. Enbridge aims to increase its dividend per share by about 10% next year. After 2020, distributable cash flow growth is estimated to be 5-7%, and its dividend growth will also be likely in that range.

TC Energy offers a yield of 4.5%. Its first-quarter payout ratio was about 43% of distributable cash flow. Management aims to increase the dividend by 8-10% per year through 2021.

Growth projects

Enbridge has a secured capital program of about $16 billion through 2023, including about $3 billion of projects that are expected to complete by the end of this year. About 56% of the $16 billion is the Line 3 Replacement project, which is expected to complete in the second half of 2020.

TC Energy has visible growth to support its increasing dividend; it has a secured capital program of about $30 billion through 2023, including about $7 billion of projects that are expected to complete by the end of this year.

Foolish takeaway

Both Enbridge and TC Energy offer safe dividend yields. However, TC Energy’s secured capital program is nearly twice the size of Enbridge’s, while it’s only about two-thirds the market cap of Enbridge. So, TRP trades at a higher cash flow multiple than Enbridge, as well as offers a lower yield.

Analysts generally think TRP is pretty fully valued compared to ENB. Thomson Reuters has a mean 12-month target of $54.20 for ENB stock, which represents there’s nearly 14% near-term upside potential compared to the price target of $65.70 for TRP, which means no upside.

As a result, investors should consider Enbridge over TC Energy for the time being and enjoy the elevated yield of 6.2%.

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Fool contributor Kay Ng owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

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