Energy companies are going through quite the shift these days. Enbridge (TSX: ENB) and Pembina Pipeline (TSX: PPL) are no exceptions. The two pipeline operators may have decades under their belts, but the future is changing.
With that in mind, which of these two stands the best chance at a strong long-term outlook? Today, we’ll look at Enbridge stock and Pembina stock to see which comes out as the best choice.
Enbridge stock
If you want big, Enbridge stock is definitely the one for you. The oil pipelines and utility profile create substantial long-term income. Yet it is the Mainline system that is the most important, controlling more than 70% of Canada’s takeaway capacity to the United States.
This is key, as demand continues to be high for oil, creating at the very least near- and medium-term strength for Enbridge stock. It’s also helpful that its earnings before interest, taxes, depreciation, and amortization (EBITDA) are protected from inflation.
The big question will be whether Enbridge stock can continue expansion. Trans Mountain does seem to be on the path towards opening in early 2024. The Mainline system is also set to extend terms as a common carrier system by the end of 2028. However, it doesn’t look likely that future projects will get underway in the next few years, especially at the scale of Line 3. Furthermore, the company has yet to seriously enter into renewable energy, which is where future money is headed.
Pembina stock
Then there’s Pembina stock, offering access to earlier growth opportunities across its pipeline services. Yet after cancelling some services in 2021, the company is now focused on creating more growth. This included the bid for Trans Mountain, which, of course, was handed over to Enbridge stock.
Even so, the company remains focused on growing through acquisitions instead of organic development. This has hurt returns in recent years, as organic projects tend to bring in higher returns. Even so, it has meant more cash and fewer hurdles.
In the near term, its Cedar LNG project is set to bring in three-million tons of gas per year from the floating vessel as part of a partnership with the Haisla Nation. This will be exported overseas. What’s more, the company continues to have $350 million on hand from the “breakup fee” between Pembina stock and Inter Pipeline. This was a great deal and provides available cash for future acquisitions.
Even so, given the company continues to fail at acquisitions, which look to be expensive, and without large growth in the renewable trade, Pembina stock also looks stuck.
Bottom line
If you’re looking at Pembina stock and Enbridge stock, I would consider Enbridge over Pembina at this stage. There are certainly locked in near- and medium-term opportunities that, at the very least, provide a safe haven for its dividend.
Keep on track with these two stocks. Both haven’t yielded large returns in the last few years. And rightly so. These could only shrink as we move towards renewable energy. So, if you’re looking for a long-term hold, I’m not sure either is right for you.
