Pembina Pipeline (TSX: PPL) and Enbridge (TSX: ENB) trade at prices that are below their 12-month highs. Contrarian investors who are bullish on oil and gas demand are wondering if one of these high-yield TSX dividend stocks is cheap today and good to buy for passive income.
Energy sector outlook
Fuel demand is expected to continue its recovery from the pandemic rout. Airlines are ordering hundreds of new planes to accommodate the surge in global travel, both for business people and vacationers, and millions of commuters are heading back to the office for at least a few days per week.
The war in Ukraine is driving a shift in natural gas and oil markets, as Europe and other countries that previously bought from Russia are scrambling to secure long-term supplies from other sources. Producers in Canada and the United States stand to benefit. This should ensure strong demand for pipeline space as oil and natural gas companies move their product to storage facilities, export terminals, refineries, and utilities.
Pembina Pipeline
Pembina Pipeline has a current market capitalization near $24 billion. It has grown steadily over the past six decades to become a key one-stop service provider for energy producers in western Canada. The company generated record results in 2022 with full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $3.75 billion.
The board raised the dividend by 3.6% last year, and Pembina Pipeline repurchased $350 million in stock.
During the pandemic Pembina put a number of capital projects on hold. The rebound in the sector is enabling the company to restart these developments, including the Phase VII Peace Pipeline. The Nipisi Pipeline will go back into service in the third quarter (Q3) of 2023, and Pembina Pipeline is expanding capacity at its Redwater fractionation and storage complex.
Pembina Pipeline trades near $44 per share at the time of writing compared to $53 in June last year. Investors who buy the stock at the current price can get a 5.9% dividend yield.
Enbridge
Enbridge is Canada’s largest energy infrastructure company with a current market capitalization near $108 billion. The firm moves 30% of the oil produced in Canada and the United States and about 20% of the natural gas used by American homes and businesses.
In addition to the pipeline networks, Enbridge has natural gas utilities, an oil export terminal, an interest in a liquified natural gas (LNG) export project, and renewable energy assets.
The $18 billion capital program should drive revenue and cash flow growth to support ongoing annual dividend hikes. Enbridge raised the payout in each of the past 28 years. The company also has the financial firepower to make strategic acquisitions to boost cash flow growth.
Enbridge trades for close to $53 at the time of writing compared to the 12-month high around $59.50. Investors who buy the stock at the current level can get a 6.7% dividend yield.
Is one a better pick today?
Pembina Pipeline and Enbridge are top dividend stocks with generous distributions. Investors seeking steady passive income might want to make Enbridge the first choice today due to the higher yield and consistent dividend-growth track record.
Pembina Pipeline, however, might be a better choice for total returns. The stock looks cheap right now, and management has a number of growth developments under consideration. In addition, it wouldn’t be a surprise to see Pembina Pipeline become a takeover target in the next few years, as the sector consolidates, and alternative asset managers search for opportunities to deploy capital.
