Energy is a substantial part of the Canadian economic mix, and the energy sector has the second-highest “weight” in the TSX. The valuation of the energy sector has significantly grown over the last three years, and the energy index has grown over 190% since the beginning of 2021.
However, not all energy stocks have experienced this bullish momentum, and two mid-stream giants are actually trading below their 2020 (pre-pandemic) peak. A positive consequence of this development is the dividend yield that has reached a very attractive level for both of these stocks.
A natural gas transportation giant
TC Energy (TSX:TRP) controls a massive natural gas pipeline network spanning about 93,300 kilometres that’s responsible for transporting about a quarter of the gas consumed in North America. The company also has a sizable oil and liquid pipeline network of 4,900 kilometres, but the plans to spin that business off have already been announced.
Once it’s complete, it will essentially be a natural gas company with a power generation business segment (4.3 gigawatts of current production capacity).
The company has been raising its dividend payouts for 23 consecutive years. This stellar dividend growth is augmented by the company’s business model and its financial resilience as a midstream company.
The bulk of the company’s income (used to fund the dividends) comes from regulated and long-term contracted sources, endorsing the financial viability of its dividends. This makes its 7.5% dividend yield quite attractive.
Largest pipeline company in Canada
Enbridge (TSX:ENB) is the largest pipeline company in North America, controlling about 28,661 kilometres of oil/liquids pipeline and 118,763 kilometres of natural gas pipeline.
These pipelines allow the company to transport about 30% of all crude oil produced in North America and one-fifth of the natural gas consumed in the United States. It’s also a natural gas utility giant in the region (largest by volume).
The company is also investing heavily in renewable energy, and though it still makes up only a relatively small segment of the business mix, it represents an interesting departure from the company’s conventional energy focus.
Enbridge is one of the most beloved dividend stocks in the country and has been raising its payouts for 28 consecutive years.
The growth has been above average in the past, but the company is now leaning more towards sustainability, and dividend growth is expected to be more “paced.” About half of the company’s income comes from regulated business segments, and the other half from take-or-pay contracts that are relatively immune to price fluctuations.
This makes its dividends financially healthy, and the 7.6% yield is quite compelling.
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Foolish takeaway
Both stocks have a stellar dividend history and healthy financials, and their futures seem secure. They are offering very similar yields, but even though Enbridge wins in yield by a hair, TC Energy may have a slight edge when it comes to the capital-appreciation potential.
But if you are buying for dividends, both appear to be compelling picks, even when they are disassociated from the sector-wide bull market.
