Enbridge (TSX:ENB) and Fortis (TSX:FTS) are down considerably from their 2022 peaks.
Contrarian investors seeking attractive dividend growth for passive income and a shot at decent total returns are wondering if ENB stock or FTS stock is now oversold and good to buy as a top pick for a self-directed Tax-Free Savings Account (TFSA) portfolio.
Enbridge
Enbridge trades near $49 per share at the time of writing compared to more than $59 in June last year.
The drop gives investors a chance to buy Enbridge at a big discount and pick up a dividend yield above 7%.
The energy infrastructure giant is pivoting away from large oil pipeline projects to drive growth. Renewable energy, oil and natural gas exports, carbon capture, and hydrogen are the focus for investment right now and in future years.
Enbridge has a $17 billion capital program on the go that should support revenue and cash flow expansion. Management remains on the lookout for strategic acquisitions, as well, supported by a strong balance sheet.
In 2021, Enbridge spent US$3 billion to buy an oil export terminal in Texas. The company also purchased a renewable energy developer in the United States last year and acquired a 30% stake in the Woodfibre liquified natural gas (LNG) facility being built on the coast of British Columbia.
Global demand for North American natural gas and oil is expected to be strong as countries around the world look to secure reliable supplies of fuel after the disruptions caused by the war in Ukraine. At the same time, Enbridge will benefit from growing investments in renewable energy infrastructure.
Even if the stock price remains near the current level, Enbridge delivers a solid return on your investment. The board increased the dividend in each of the past 28 years, and investors should see dividends continue to rise in the 3% range as new assets go into service.
Fortis
Fortis owns $65 billion in utility assets in Canada, the United States, and the Caribbean. The businesses include power generation, electricity transmission, and natural gas distribution operations. Revenue comes almost completely from rate-regulated assets, so cash flow should be reliable and predictable. This is good news for investors who want to get steady passive income from their savings.
Fortis is working on a $22.3 billion capital program that will boost the rate base by about 6% per year over five years. The resulting increase in cash flow should support management’s plan to increase the dividend by 4-6% per year through 2027. That is good guidance in the current economic environment.
Fortis raised the dividend in each of the past 49 years. At the time of writing, FTS stock provides a 4.1% dividend yield. The stock trades near $54 compared to $64 at one point in 2022.
Is one a better pick?
Investors focused on high yields for generating passive income should make Enbridge the first choice right now. It is difficult to turn down a 7% yield that should be safe.
Fortis will likely deliver better dividend growth than Enbridge over the medium term, and share price growth could also be better, so the stock deserves to be on your radar for a portfolio targeting total returns.
At their current share prices, I would probably split a new investment between ENB and FTS.
