Oil has powered the global economy for decades, allowing TSX energy stocks to create significant wealth for long-term investors. While the world is rapidly shifting towards clean energy solutions to combat climate change, oil demand is still forecast to peak in the early 2030s.
Additionally, several legacy oil companies are investing heavily to gain traction in the renewable energy space, allowing them to diversify their cash flows.
Two such blue-chip TSX energy stocks are Enbridge (TSX:ENB) and TC Energy (TSX:TRP), which have returned 896% and 431%, respectively, to shareholders in the last 20 years after adjusting for dividends. Comparatively, the TSX Index has returned 404% to investors in this period. Despite these outsized gains, both Enbridge and TC Energy currently offer shareholders a tasty dividend yield.
Let’s see which energy stock is a better buy right now.
The bull case for Enbridge stock
One of the most popular stocks on the TSX, Enbridge currently offers shareholders a dividend yield of over 7%. The energy giant has increased dividends for 28 consecutive years, showcasing the resiliency of its cash flows across economic cycles. Since 1995, ENB stock has increased dividends by 10% annually, which is exceptional for an energy stock.
Enbridge’s cash flows are regulated and backed by long-term contracts that are indexed to inflation. Moreover, it continues to reinvest profits in capital expenditures, allowing it to increase cash flows and earnings over time.
With a payout ratio of less than 70%, it has room to lower balance sheet debt and strengthen its financials. Around 90% of Enbridge’s debt is tied to fixed interest rates, shielding it from quantitative tightening measures.
Due to a challenging macro environment, Enbridge expects cash flow per share to grow by 3% annually until 2025, post which they should expand by 5% each year. Priced at 17 times forward earnings, ENB stock trades at a discount of 16% to consensus price target estimates.
The bull case for TC Energy stock
TC Energy pays shareholders an annual dividend of $3.72 per share, indicating a forward yield of 6.9%. The company has increased dividends for 22 consecutive years at an annual rate of 6.7%.
Similar to Enbridge, over 85% of TC Energy’s debt is fixed in nature. TC Energy also aims to lower its leverage ratio to less than 4.75 times within the next three years by selling non-core assets and using the proceeds to reduce debt.
TC Energy has a portfolio of top-tier assets and continues to invest in pipeline projects, which should drive the return on invested capital higher in the upcoming decade.
Priced at 12.9 times forward earnings, TC Energy stock is trading at a discount of 10% to consensus price target estimates.
The Foolish takeaway
Both TC Energy and Enbridge enjoy wide economic moats, predictable cash flows, and are armed with strong balance sheets. However, Enbridge has a better track record of growing dividends, delivering outsized gains, and increasing distributable cash flows per share, making it a better stock to buy right now.
If you are bullish on the energy sector, it makes sense to buy and hold shares of Enbridge, which is down 16% from all-time highs.
