Better Buy for Passive Income: Enbridge Stock or CNQ Stock?

Enbridge and Canadian Natural Resources have great track records of dividend growth.

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Enbridge (TSX:ENB) and Canadian Natural Resources (TSX:CNQ) are leaders in their respective sectors of the energy industry. Investors seeking passive income are wondering which TSX energy stocks might be good to help diversify their portfolios today.

Energy outlook

The rebound in the energy sector should continue over the medium term, even if the Canadian and U.S. economies hit a rough patch in the next 12-18 months.

Why?

Domestic fuel demand is expected to be robust, as airlines ramp up capacity to serve the post-covid travel surge and office workers who spent the better part of the past three years working from home head back to in-person meetings with the boss. These trends should drive the need for more jet fuel and gasoline.

On the global front, the war in Ukraine has forced countries to turn to Canada and the United States for reliable supplies of natural gas and oil. The export of liquified natural gas (LNG) is expected to rise in the coming years.

Oil and natural gas producers in Canada should reap the benefits through higher prices and larger volume sales. The energy infrastructure players that move the products from the production sites to storage facilities, refineries, utilities, and export terminals should also see solid demand for their services.

Enbridge

Enbridge (TSX:ENB) transports crude oil, refined fuels, natural gas, and natural gas liquids. The company is primarily known for its vast oil pipeline networks that move almost a third of the oil produced in Canada and the United States. However, Enbridge also has an oil export terminal in Texas, a 30% interest in a new LNG project in British Columbia, natural gas pipelines, natural gas utilities, and renewable energy assets.

The stock trades near $53 at the time of writing compared to a 12-month high around $59.50 las June.

The board increased the dividend in each of the past 28 years with a 3.3% raise for 2023. Investors who buy the stock at the current price can get a 6.7% dividend yield.

Canadian Natural Resources

The oil crash in 2014 and plunge in 2020 served as good reminders that commodity markets can be very volatile, and the stocks of companies that rely on commodity prices tend to follow the market. Prior to 2014 many oil and natural gas producers had become dividend darlings. Very few, however, are still in that category, but CNRL is one.

The board increased the dividend in each of the past 23 years with a compound annual growth rate of better than 20% over that timeline. When oil and natural gas prices are high the payout increase tends to be generous, and when times are tough the board adjusts, but the distribution has yet to be cut.

CNRL’s differentiator is its diversified portfolio of oil and natural gas production, an ability to shift capital across the asset base quickly, and a robust balance sheet to ride out the downturns.

CNQ stock trades near $82 per share. That’s up considerably from the March dip below $70. At the time of writing, the stock provides a 4.4% yield on the base dividend. Investors received a big bonus payout last August, and more special distributions could be on the way if oil prices move higher.

Is one a better dividend pick?

These stocks have long track records of dividend growth and should continue to increase their payouts. Income investors seeking lower volatility and a high yield should probably make Enbridge the first choice right now.

CNQ might deliver a better total return in the next few years if oil and natural gas prices remain elevated, but the stock carries a higher commodity risk. Even if you are an oil bull, I would probably wait for the next pullback to buy CNQ.

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 Canadian Natural Resources and Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.

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