Canadians maintaining a stock portfolio would have either a big bank or a top-tier energy company as a core holding. It’s logical considering the equity weights of the financials (30.8%) and energy (18.1%) sectors on the TSX.
Furthermore, it wouldn’t be surprising if it’s Toronto-Dominion Bank (TSX:TD) or Enbridge (TSX:ENB). However, if I invest today and choose only one dividend giant, Enbridge is my pick. You may or may not agree with my selection, but I’d be more comfortable holding the energy bellwether for the long term.
Slump and crisis
Only energy (-6.49%) and financials (-0.21%), out of 11 primary sectors, are in the red as of this writing. Energy stocks stormed back from a slump in 2020 to become the hottest sectors in 2021 and 2022. Unfortunately, the momentum is gone due to weakening oil and gas prices in 2023.
Meanwhile, banks are under the microscope following the collapse of American banks recently. There’s also a significant jump in the loan-loss provisions of Canadian Big Banks, including TD. According to Andrew Pyle, senior investment advisor and portfolio manager at CIBC Wood Gundy, the collective amount they set aside reached $3 billion.
Pyle noted that lower banks’ profits this earnings season because of higher loan-loss provisions. Nevertheless, it shows the strong risk-management strategy of the Canadian banking sector. Investors should benefit from this precautionary measure in the future.
TD, the second-largest TSX company by market capitalization, isn’t inferior to any Canadian or American stock. The $145.46 billion bank has an incredible dividend track record of 166 years. At $79.12 per share (-7.7% year to date), the dividend yield is 4.91%. The bank stock’s overall return in 50.5 years is 37,258.34% — a compound annual growth rate (CAGR) of 12.45%.
In the second quarter (Q2) of fiscal 2023, TD’s net income decreased 12.1% year over year to $3.35 billion. Notably, provision for credit losses soared 2,118.5% to $599 million versus Q2 fiscal 2022. For the six months that ended April 30, 2023 (first half of fiscal 2023), net income fell 34.6% to $4.93 billion from a year ago.
TD could have been the sixth-largest bank in the U.S. if not for the termination of the First Horizon acquisition deal due to uncertain regulatory approval. As a result, the big bank has an excess capital beyond the allowable limit.
Enbridge is a Dividend Aristocrat owing to 27 consecutive years of dividend increases. Besides the lower share price of $49.04 (-4.2% year to date), the dividend offer is a lucrative 7.27%. Moreover, the total return in 47.43 years is 48,606.35% (13.94% CAGR).
With its market cap of $99.3 billion, Enbridge is the third-largest company on the TSX. The energy infrastructure company isn’t an oil producer and operates like a utility firm. Its four core franchises (liquids pipelines, gas transmission & midstream, gas distribution, and renewables) have visible long, growth runways.
Enbridge should also attract more responsible investors, as it aims to reduce emissions intensity by 35% in 2030 and achieve net-zero emissions by 2050.
I prefer Enbridge over TD because of less volatility and growing dividends. However, owning both dividend giants today would be a bonus, and it would be like having golden parachutes.