Are you building your dividend portfolio? It is always better to have a diversified portfolio spread across different sectors so that your passive income is not exposed significantly to industry-specific risk. Oil and gas pipeline companies are the most lucrative dividend stocks in Canada. And the two biggest pipeline companies are Enbridge (TSX: ENB) and TransCanada (TSX: TRP).
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Pipeline companies and their dividends
Pipeline companies are not significantly affected by oil and gas prices as their primary source of income is toll money. The more volumes flow through these pipelines, the higher their income. The biggest challenge for these companies is building new pipelines. These projects are capital intensive and cross various habitations. Hence, they receive significant opposition from environmentalists.
As building pipelines is so capital intensive, no two pipeline companies compete with each other. The toll rate is regulated, giving them equal opportunity to make money.
TransCanada and Enbridge
Both TransCanada and Enbridge have a similar leverage ratio of around 4.6. This ratio tells you the long-term debt of the two companies is 4.6 times their annual profit from operations. If these companies were to spend their entire operating income to repay debt, it would take them around five years to become debt free.
They both are investing in gas pipelines to tap the opportunity of North America’s liquefied natural gas (LNG) exports. Their key source of funding is the cash from operations and long-term debt. They both have been growing dividends for more than 20 years.
TransCanada vs. Enbridge
While they operate in the same business, what sets them apart is efficiency in executing the project on time and within budget. This is where Enbridge beats TransCanada. Enbridge projects are around the budget, but TransCanada has been facing issues with two projects.
TransCanada’s Keystone pipeline has been the centre of attention for its +20 oil leaks — the most recent of which was in December 2022. The project has faced so much criticism that the company cancelled the pipeline expansion after U.S. president Joe Biden revoked the permit in June 2021.
Another troublesome project is TransCanada’s Coastal GasLink project, which has gone way over budget — almost double the estimated cost. The company paid for the over budget with its pocket, because of which there was a $3 billion amortization cost in the 2022 earnings. But such costs are a part of the pipeline business.
Despite higher costs and project challenges, TransCanada pays a higher dividend per share than Enbridge. Does it mean TransCanada is a better dividend stock? Let’s find out.
How much dividend will you earn?
If you’d invested $10,000 in each of the two stocks in January 2013, your annual dividend income would look something like this:
| TRP Dividend/Share | Dividend Income | Year | ENB Dividend/Share | Dividend Income |
| $3.72 | $796.08 | 2023 | $3.55 | $820.05 |
| $3.60 | $770.40 | 2022 | $3.44 | $794.64 |
| $3.48 | $744.72 | 2021 | $3.34 | $770.89 |
| $3.24 | $693.36 | 2020 | $3.24 | $748.44 |
| $3.00 | $642.00 | 2019 | $2.95 | $681.91 |
| $2.76 | $590.64 | 2018 | $2.68 | $620.00 |
| $2.50 | $535.00 | 2017 | $2.41 | $557.40 |
| $2.26 | $483.64 | 2016 | $2.12 | $489.72 |
| $2.08 | $445.12 | 2015 | $1.86 | $429.66 |
| $1.92 | $410.88 | 2014 | $1.40 | $323.40 |
| $1.84 | $393.76 | 2013 | $1.26 | $291.06 |
A $10,000 investment in 2013 would’ve bought 214 shares of TransCanada that paid a $1.84 dividend per share, giving you $393 in annual passive income. As the company grew its dividend at a 7% compound annual growth rate (CAGR), 214 TRP shares would earn you $796 in passive income this year.
A $10,000 investment in 2013 would’ve bought 231 shares of Enbridge that paid a $1.26 dividend per share, giving you $291 in annual passive income. As the company grew its dividend at a CAGR of 11.9%, 231 ENB shares would earn you $820 in passive income this year.
Which is a better stock?
Both companies have reduced their dividend growth to 3.2%, but TRP has a slightly higher growth rate. Moreover, TransCanada stock is trading closer to its 52-week low of $50, while Enbridge is trading closer to its 52-week high of $59.9. While both are good dividend investments, TransCanada is a better buy at a price below $58.
