Enbridge (TSX:ENB) and TC Energy (TSX:TRP) are midstream energy companies that have consistently rewarded their shareholders by raising their dividends. Besides, both companies offer attractive dividend yields of over 7.5%. Considering their impressive record of dividend growth and high yields, let’s assess which of the two companies would be a better buy in this volatile environment.
Enbridge
Enbridge is an energy infrastructure company that transports 30% of North America’s crude oil and 20% of the natural gas consumed by the United States. Besides, it is North America’s third-largest natural gas utility company and has a strong presence in the renewable energy sector. With approximately 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) produced from regulated assets and take-or-pay contracts, the company generates stable and predictable cash flows, allowing it to consistently raise its dividends. The midstream energy company has increased its dividends for the previous 28 years at an annualized rate of 10%, while its forward yield stands at an impressive 8.04%.
Meanwhile, the company recently announced that it has signed agreements to acquire three natural gas utility companies from Dominion Energy for $19 billion. These acquisitions could double its gas utility business while increasing the contribution from the segment to 22% of the company’s total EBITDA. The increased contribution from low-risk utility businesses could further stabilize its cash flows. Besides, the company is continuing its $19 billion secured capital program and expects to support $6 billion worth of projects by the end of 2024. Considering all these factors, I believe the company’s future payouts are safe.
However, Enbridge has been under pressure over the last few weeks amid concerns over the rising of its debt levels due to its recent acquisitions. It has lost over 12% of its stock value this year and trades at an attractive NTM ( next 12 months) price-to-earnings multiple of 15.7, making it an attractive buy.
TC Energy
TC Energy also operates a highly regulated business, with around 67% of its adjusted EBITDA generated from regulated assets and 28% from long-term contracts. Besides, commodity price fluctuations will impact only 5% of its adjusted EBITDA. So, the company’s financials are immune to market volatilities, thus generating stable cash flows and consistently allowing it to raise its dividends. The company has increased its dividends consistently since 2000 at a CAGR of 7%, with its forward yield standing at 7.96%.
The Calgary-based company is focusing on deleveraging amid the rising interest rates. Recently, it sold its 40% stake in Columbia Gas Transmission and Columbia Gulf Transmission for $5.3 billion. The transaction could lower the company’s EBITDA-to-debt ratio by 0.4. Also, the company is working on spinning off its liquids pipeline business, with the management expecting to complete the deal in the second half of 2024.
Besides, TC Energy is continuing with its secured capital program and expects to grow its adjusted EBITDA at a CAGR (compound annual growth rate) of 6% through 2026. Upon the spin-off, the growth could increase to 7%. Given its healthy growth prospects, the company’s management is confident of maintaining 3-5% dividend growth in the coming years. However, amid the recent sell-off, the company has lost 8.6% of its stock this year and trades at an attractive NTM price-to-earnings multiple of 12.1.
Investors’ takeaway
Given the uncertain market conditions and Federal Reserve’s conservative monetary policies, I expect both companies to remain volatile in the near term. However, long-term investors can start accumulating the stocks to earn a stable passive income, given their solid underlying businesses and high yields. Meanwhile, I am more bullish on Enbridge due to its reliable underlying businesses, growing utility asset base, and high dividend yield.
