Should You Buy Enbridge Stock or Royal Bank Stock for Passive Income and Total Returns?

Enbridge and Royal Bank are leaders in their respective industries. Is one a better bet today?

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Enbridge (TSX:ENB) and Royal Bank (TSX:RY) are leaders in their respective industries. These top TSX dividend stocks have delivered solid returns for long-term investors.

Retirees and younger investors looking to generate passive income and total returns are wondering if ENB stock or RY stock is undervalued today and good to buy heading into 2023.


Enbridge is benefitting from the rebound in demand for oil and natural gas after the market crashed during the pandemic lockdowns. Looking ahead, the positive trend is expected to continue.

On the oil side, jet fuel and gasoline demand should soar. Airlines are announcing large orders for new planes in anticipation of the ongoing recovery in the demand for travel. At the same time, managers at large corporations are beginning to call employees back to the office for two or three days per week.

The hybrid model might actually result in higher gasoline demand in 2023 and 2024, as commuters who historically took public transportation every day could decide to just drive when they have to head to the city. In addition, thousands of people left the city core for the suburbs and secondary cities during the pandemic. These people will now have to commute.

International demand for Canadian and U.S. natural gas is on the rise due to the market disruptions caused by the war in Ukraine. Europe and other major natural gas users are searching for reliable, long-term supplies to replace the reliance on Russia.

Enbridge moves 30% of the oil produced in Canada and the United States and has vast natural gas transmission, storage, and distribution assets. The company bought an oil export terminal in the United States for US$3 billion last year and recently took a 30% stake in a new liquified natural gas (LNG) facility in British Columbia that is expected to be in service by the end of 2027.

Enbridge just increased its dividend by 3.2%, marking the 28th consecutive annual payout raise. At the time of writing, the stock trades near $53 per share compared to more than $59 in June. Investors who buy at the current price can get a 6.7% dividend yield.

Long-term investors have done well with the stock. A $10,000 investment in Enbridge 25 years ago would be worth more than $180,000 today with the dividends reinvested.

Royal Bank

Royal Bank is the latest of the big Canadian banks to announce a major acquisition. Canada’s largest financial institution by market capitalization is buying HSBC Canada for $13.5 billion. The price tag for the deal is higher than analysts anticipated, but Royal Bank says the purchase is compelling. Management puts the price at 9.4 times anticipated 2024 adjusted earnings with expected synergies taken into consideration.

Royal Bank will pick up about 130 new branches and more than $130 billion in assets as part of the deal. HSBC Canada has an attractive portfolio of wealthy clients.

RY stock is down about 6.5% in 2022 compared to a plunge of more than 25% at some of its peers. Uncertainty about the severity of the anticipated recession next year could keep the stock trading in a tight range, or even send it back down toward the 2022 lows in the coming months. Royal Bank trades near $128 per share at the time of writing compared to the 2022 high around $150 and the 2022 low near $117.

Investors who buy the stock at the current price can get a dividend yield of 4%.

A $10,000 investment in Royal Bank stock 25 years ago would be worth about $160,000 today with the dividends reinvested.

Is one a better bet?

Enbridge and Royal Bank should both be solid picks for a diversified portfolio seeking passive income and total returns. If you only buy one, I would probably make Enbridge the first choice today.

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 recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.

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