TC Energy (TSX:TRP) and Enbridge (TSX:ENB) are down from their 12-month highs. Retirees and other investors seeking high-yield passive income are wondering if one of these top TSX dividend stocks is now undervalued and good to buy for a retirement portfolio.
TC Energy
TC Energy used to be called TransCanada, but the board decided to change the name due to the broader reach of the assets. The business has more than 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. Oil pipelines and power-generation facilities round out the operations.
TC Energy stock trades near $56 per share at the time of writing. That’s off the $51 low the stock hit in March, but still way down from the $74 it reached in June last year.
Most of the energy infrastructure players saw their share prices slide through the second half of last year, but TC Energy was hit particularly hard due to issues on the Coastal GasLink pipeline project, even after the company announced a cost-sharing agreement had been worked out with LNG Canada. TC Energy is building the pipeline to bring natural gas to a new liquified natural gas (LNG) processing and export facility being built on the coast of British Columbia.
In the latest update, TC Energy said the project is expected to cost about $14.5 billion, but additional delays could push the number higher. The original projection had a budget of less than half the current estimate, so investors are not pleased. Pandemic delays, bad weather, high inflation, and disputes with contractors have all played a part. Fortunately, the pipeline is more than 80% complete, and investors can start to focus on other initiatives.
TC Energy’s total capital program sits at $34 billion and is expected to support annual dividend growth of 3-5% over the medium term. The board increased the quarterly distribution by 3.3% for 2023 to $0.93 per share. That’s good for an annualized yield of 6.6% at the time of writing.
TC Energy has increased the dividend every year for more than two decades.
Enbridge
Enbridge is known as an oil pipeline and oil export business, but it also has natural gas transmission pipelines, gas storage, natural gas utilities, and renewable energy assets.
The stock has held up better than TC Energy in the past year. Enbridge trades for close to $53.50 at the time of writing compared to $59.50 at the 12-month high. The board raised the dividend by more than 3% for 2023 and the current payout provides a yield of 6.6%.
Enbridge is working on $18 billion in capital projects. The increase in revenue should support ongoing distribution growth along the same lines as this year. Enbridge raised the distribution in each of the past 28 years.
Demand for oil and natural gas is expected to rise in the near term. A rebound in travel for work and play is driving higher fuel consumption. At the same time, Europe is turning to North America as a key provider of liquified natural gas after the major disruptions in supplies that occurred as a result of the war in Ukraine.
Is one a better pick today?
TC Energy and Enbridge pay attractive dividends with similar yields. Distribution growth will likely be in the same range at the two companies in the next few years. TC Energy likely carries more risk in the near term but also probably has more upside potential.
At this point, I would lean to TC Energy for the first pick or simply split a new investment between the two stocks.
