Enbridge (TSX:ENB) and Suncor (TSX:SU) are major players in the energy sector. As fuel demand rebounds from the pandemic slump investors are wondering which TSX energy stock might still be undervalued and good to buy right now for a self-directed Registered Retirement Savings Plan (RRSP) portfolio.
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Enbridge
Enbridge is known for its vast oil pipeline infrastructure in Canada and the United States. The company moves nearly a third of the oil produced in the two countries. Enbridge also has natural gas transmission lines, storage, and distribution operations. Export facilities and renewable energy assets round out the portfolio.
Enbridge trades near $51 per share at the time of writing compared to more than $59 last summer.
The stock is down from the 12-month high, despite a solid financial performance last year and good guidance for 2023. Enbridge generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $15.3 billion in 2022 compared to $14 billion in 2021. Management expects 2023 adjusted EBITDA to be at least $15.9 billion, so the outlook is positive for this year.
The board raised the dividend by 3.2% for 2023. This is the 28th consecutive annual dividend hike. At the time of writing, investors can get a 6.9% dividend yield.
Suncor
Suncor is reaping the benefits of a rebound in oil prices and the recovery in fuel demand, but the stock remains out of favour. The company upset investors when it cut the dividend by 55% early in the pandemic. Safety issues, pressure from an activist investor, and management changes have also likely kept investors on the sidelines.
Suncor trades near $44 per share. This is close to where the stock traded right before the pandemic. Several of its peers, however, have seen their share prices rise as much as 100% from their early 2020 levels.
Oil prices are off the 12-month highs, and investors should anticipate ongoing volatility. However, Suncor’s share price might be oversold. The company used the cash windfall over the past two years to increase the dividend to a new all-time high. Suncor also reduced debt and repurchased a large chunk of stock. A new chief executive officer was recently announced, and Suncor has completed a strategic review of its operations. Non-core assets are being monetized, but the integrated structure that includes production, refining, and retail assets will remain in place to capitalize on the rebound in fuel demand.
Airlines are ramping up capacity and corporations are calling commuters back to the office. Oil bulls expect market conditions to be tight in the next few years and predict West Texas Intermediate oil to return to US$100 per barrel.
At the time of writing, Suncor stock provides a 4.7% dividend yield.
Is one a better RRSP pick?
Enbridge and Suncor pay attractive dividends that should continue to grow in the coming years. Enbridge is probably the safer bet, while Suncor likely offers more upside potential if oil bulls prove to be correct in their outlook for oil prices.
I would probably make Enbridge the first choice today for the high yield and reliable dividend growth, but both stocks appear cheap right now and deserve to be on your RRSP radar.
