The TSX energy sector is starting to bounce back after a market correction drove down the share prices of producers and energy infrastructure players. Investors with a positive outlook on the energy sector are wondering if Suncor (TSX:SU) and Enbridge (TSX:ENB) are still undervalued and good stocks to buy for portfolios focused on passive income and total returns.
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Suncor
Suncor’s share price has lagged its oil sand peers. In fact, the stock trades pretty much right where it did in early 2020 before the pandemic.
The share prices of other large players in the oil ands sector have delivered gains as high as 100% from their pre-pandemic levels, supported by the strong recovery in oil prices.
Suncor lost the confidence of investors when it slashed the dividend by 55% in the early weeks of the 2020 crash. The move seemed prudent at the time, when oil futures briefly went negative, and there was no way of knowing what would happen to oil prices, as the pandemic continued.
Once oil prices recovered, Suncor’s board eventually raised the payout back to the previous level and even increased the dividend to a new all-time high, but the market is still not giving the stock any love. This might be an opportunity for contrarian investors.
Suncor put a new chief executive officer in place this year, and the company has made good progress on monetizing non-core assets. The integrated structure that historically attracted investors to the stock should deliver decent returns again, as global fuel demand grows with the rebound in air travel and the return of commuters to the highways. Suncor is known for its oil sands production, but the company also operates refineries and roughly 1,500 Petro-Canada retail locations.
At the current share price near $43, investors can get a dividend yield of 4.8%.
Enbridge
Enbridge’s liquids pipeline network helps companies like Suncor get their products to refineries, storage locations, and export facilities. The firm moves 30% of the oil produced in Canada and the United States and has an oil export facility in Texas that it purchased for $3 billion in 2021.
Enbridge also owns large natural gas operations. The firm transports 20% of the natural gas used in the United States. Its natural gas utilities distribute fuel to millions of Canadian customers. In addition, Enbridge is a partner on the construction of a new liquified natural gas (LNG) terminal being built in British Columbia.
Renewable energy assets round out the portfolio.
Enbridge has a capital program worth $18 billion on the go that will help boost revenue and cash flow. The company is also large enough to make strategic acquisitions to drive additional growth.
The stock is off the recent lows, but still looks cheap near $53. Investors who buy at this level can get a 6.7% dividend yield.
Is one a better bet?
Suncor and Enbridge pay attractive dividends that should continue to grow. Oil bulls who think the price of oil will continue rise and retest US$100 might want to make Suncor the first choice, as it should have more upside torque in that scenario.
Otherwise, investors seeking reliable high-yield passive income should consider Enbridge for its diversified and regulated revenue stream.
