TC Energy (TSX:TRP) and Enbridge (TSX:ENB) now offer dividend yields above 7% after their share prices pulled back over the past year. Investors seeking high-yield passive income are wondering if TRP stock on ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA).
TC Energy (TSX:TRP) is primarily a natural gas transmission company with more than 90,000 km of natural gas pipelines and 650 billion cubic feet of gas storage located across Canada, the United States, and Mexico. The business also has oil pipelines and power-generation facilities.
TC Energy has had some issues with soaring costs on a major project. The 670 km Coastal GasLink pipeline has finally reached mechanical completion but is expected to sport a final cost of around $14.5 billion, which is more than double the initial budget.
TC Energy is raising cash through asset sales to reduce debt and shore up the balance sheet to move forward on the rest of the capital program. The oil pipeline business will become a separate company, and TC Energy is looking at the full or partial sale of additional assets.
TC Energy trades near $50 per share at the time of writing. That’s off the 2023 low of around $44 but still way off the $74 the stock reached last year.
Now that the end of the pain on the Coastal GasLink pipeline is in sight and management is making good progress on repairing the balance sheet, the stock is likely oversold. TC Energy expects 2023 comparable earnings per share to be in line with 2022. The remaining capital projects on the go and revenue from Coastal GasLink should help support planned annual dividend increases of 3-5% over the medium term.
TC Energy has increased the dividend annually for more than 20 years. Investors who buy at the current level can get a 7.5% dividend yield.
Enbridge (TSX:ENB) is expanding its asset base beyond the core oil and natural gas transmission systems that have been the drivers of growth in recent decades. Getting large new pipeline projects approved and built is difficult these days, so Enbridge is shifting its investments to exports, renewable energy, and natural gas utilities.
Enbridge recently announced a US$14 billion deal to buy three natural gas utilities in the United States. Last year, Enbridge bought a solar and wind project developer and secured a stake in the Woodfibre liquified natural gas (LNG) export plant being built on the coast of British Columbia. In 2021, Enbridge purchased an oil export terminal in Texas for US$3 billion.
In addition, Enbridge has a $24 billion capital program on the go through 2028, assuming the planned gas utility acquisitions are approved. The company already has 75% of the required financing in place to cover the purchases.
Enbridge is on track to hit its 2023 guidance, so the dividend should increase in 2024. The board raised the dividend annually for the past 28 years. Investors can currently get a 7.7% dividend yield from ENB stock. The shares trade near $46 at the time of writing compared to $59 at the high point last year.
Is one a better pick?
TC Energy and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, both stocks look cheap and deserve to be on your radar today.
Enbridge has a slightly higher yield, while TC Energy might offer better upside on a rebound. I would probably split a new investment between the two stocks right now for passive income.