Enbridge (TSX: ENB) and Pembina Pipeline (TSX: PPL) are down considerably from their 2022 highs. Investors who missed the rally off the 2020 market crash are wondering if ENB stock or PPL stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
Enbridge
Enbridge is one of Canada’s largest companies with a current market capitalization near $100 billion. The firm takes advantage of its size to make strategic acquisitions in new segments, including fuel exports and renewable energy, to boost growth. Enbridge purchased an oil export terminal in Texas in 2021 for US$3 billion. Last year, Enbridge acquired a 30% stake in the new Woodfibre liquified natural gas (LNG) facility being built in British Columbia and bought an American renewable energy developer.
The oil pipelines, natural gas transmission assets, and natural gas distribution utilities remain core operations and should continue to perform well in the coming years. Enbridge has a new contract with major clients for its Mainline oil pipeline. The deal makes future revenue more predictable. Enbridge also has a $17 billion capital program on the go that is expected to support growth in adjusted earnings per share (EPS) of 4-5% and distributable cash flow (DCF) growth in the 3-5% range over the medium term.
Enbridge trades near $49 per share at the time of writing compared to above $59 at the peak last year.
Enbridge increased the dividend in each of the past 28 years. Investors can now get a 7.2% yield on the stock.
Pembina Pipeline
Pembina Pipeline has grown steadily over the past 65 years to become a key provider of midstream services to the Canadian energy sector. The company has oil pipelines, natural gas pipelines, gas gathering and processing facilities, logistics operations, and propane export terminals.
Future projects under consideration include a low-carbon ammonia and hydrogen production facility, a new LNG facility, and a carbon sequestration development.
Pembina Pipeline increased the dividend by 2.3% when it announced the first-quarter (Q1) 2023 earnings. Management confirmed the 2023 guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $3.5 billion to $3.8 billion, even after the impact of a major outage on a key pipeline in the first half of 2023. Adjusted EBITDA for 2022 was a record $3.75 billion.
Pembina Pipeline trades near $41.50 at the time of writing compared to more than $50 per share in June last year. The pullback appears overdone, and investors can now get a 6.4% dividend yield.
Pembina Pipeline has a market capitalization of about $23 billion. This enables the company to make large acquisitions but is also in a size range that could put Pembina Pipeline in the sights of a much larger infrastructure player or even an alternative assets management firm.
Is one a better pick?
Investors seeking reliable passive income should probably make Enbridge the first choice for the higher yield. However, contrarian investors seeking a shot at decent capital gains on top of a good yield might want to consider Pembina Pipeline at this level.
