The energy sector is a top destination for income-oriented investors and yield seekers. Energy companies often offer juicy dividend yields backed by strong cash flows, which ensures a steady (and growing) stream of dividends. Two companies that fit the bill perfectly are Enbridge (TSX:ENB)(NYSE:ENB) and Suncor Energy (TSX:SU)(NYSE:SU). Both companies have their pros and their cons, but which is the better dividend stock?
The case for Enbridge
Enbridge is one of the largest pipeline companies in North America. The firm is responsible for the transport of over 60% of crude oil from Canada to the U.S. and owns a 20% share in the U.S. natural gas transportation business. Enbridge also operates one of the largest utilities companies in Canada. In short, the firm has multiple sources of revenues, many of which are fairly stable and predictable. Enbridge has run into some issues lately, though, with the completion of its largest ever growth project — the Line 3 Pipeline Replacement Project — now in jeopardy. Part of this newly renovated pipeline is already in service, but Enbridge was stripped of its approval to continue with its project by the Minnesota court of appeals.
Despite this setback, Enbridge still looks like an attractive option, especially when considering the firm’s share price has been dragged down recently. Enbridge is still well positioned to continue being one of the major players in the lucrative North American energy industry.
Of course, no discussion of Enbridge would be complete without mention of its dividends. The company offers a juicy yield, which is currently 6.56%. Enbridge has raised its dividends by 110% over the past five years, which amounts to an annual dividend increase of 22%. With plans to increase its dividend payouts even more, investors can be confident in receiving a stable stream of cash flows when they purchase shares of Enbridge.
The case for Suncor Energy
Suncor made news earlier this year when famed investor Warren Buffett added shares of this top energy company to his portfolio. However, things have been going downhill ever since. The company’s share price has decreased by about 20% since mid-March. Of course, this performance isn’t too alarming given that equity markets have not generally performed well over the past few months.
Suncor’s recent financial results should help assuage the fears of investors regarding its prospects. Suncor’s record total production, which came in at 803,900 barrels of oil per day, was a 21% increase year over year. This led to the firm’s net income jumping by more than 170%.
Such excellent financial results should allow Suncor, which is currently on a streak of more than 15 consecutive years of dividend increases, to raise its dividends even more. The firm currently offers investors a dividend yield of 4.42% and a payout ratio of just 43.21%. Clearly, the energy company is more than capable of sustaining dividend increases. Finally, Suncor is currently trading at just 10.44 times past and 11.82 future earnings (at writing). This is quite a bargain considering the company’s prospects. All things considered, it isn’t surprising that Warren Buffett decided to add shares of this energy giant to his portfolio.
The verdict
While income-seeking investors likely can’t go wrong with either one of these two top companies, Enbridge gets out slightly ahead in my view. Enbridge has an even stronger position in its industry than Suncor and offers a higher dividend yield and solid growth prospects. Despite the recent headwinds related to its Line 3 Replacement Project, the company continues to deliver strong earnings. Once everything falls in place for Enbridge, the sky is the limit.
