TC Energy (TSX:TRP) and Pembina Pipeline (TSX:PPL) are top TSX dividend stocks that have fallen considerably in the past year. Investors with a contrarian investing strategy are wondering if they are now undervalued, and which is the best buy for a portfolio focused on dividend stocks.
TC Energy
TC Energy trades for close to $54.50 at the time of writing. This is down from $74 last June, but up from the 12-month low around $51 the stock hit in March.
TC Energy is primarily focused on the transmission and storage of natural gas with 93,000 km of natural gas pipelines and more than 650 billion cubic feet of natural gas storage capacity spread out across Canada, the United States, and the Caribbean. TC Energy also has oil pipelines and power generation facilities that round out the $100 billion asset base.
The stock fell out of favour in the past year due to soaring expenses on a large project. The coastal GasLink pipeline is now expected to cost at least $14.5 billion. This is more than double the original budget. Pandemic delays, rising labour and material costs, problems with contractors and unfavourable weather conditions have all impacted the project. Fortunately, the pipeline is nearly 90% complete and investors can focus on the coming years.
TC Energy’s total capital program is about $34 billion. Management is selling roughly $5 billion in non-core assets to help fund the developments. Despite the challenges on the Coastal GasLink, TC Energy still expects to deliver annual dividend growth of at least 3% over the medium term. TC Energy has increased the payout annually for more than two decades. The current distribution provides an annualized yield of 6.8%.
Pembina Pipeline
Pembina Pipeline has grown considerably over the past 60 years to become a key player in the Canadian energy patch providing oil and natural gas producers with gathering, processing, and transmission services. The company has a good track record of making strategic acquisitions and is willing to enter partnerships on new opportunities.
Pembina Pipeline trades for close to $42 at the time of writing compared to $53 at the 2022 high.
The drop gives investors a chance to pick up a 6.3% dividend yield and wait for a turnaround in the energy infrastructure sector.
Pembina Pipeline recently announced a small dividend increase and confirmed its full-year guidance, even though Q1 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) dipped to $947 million from $1 billion last year due to an outage on a major pipeline. In the near term, investors should keep an eye on the wildfire situation in Alberta that has already forced Pembina Pipeline to temporarily shut down some operations.
Is one a better pick?
TC Energy and Pembina Pipeline pay attractive dividends that should continue to grow. Both stocks appear oversold right now and deserve to be on your radar.
If you only buy one, I would probably make TC Energy the first choice. It has a broader geographic presence and more consistent dividend growth history, and the power generation assets provide a reliable revenue stream to help fund capital projects.
