Blue-chip TSX dividend stocks such as Enbridge (TSX:ENB) and TC Energy (TSX:TRP) have created massive wealth for long-term shareholders. After adjusting for dividends, Enbridge has returned 740% to shareholders since the end of 2003. In this period, TC Energy has gained over 350%, compared to the 360% gains of the TSX index.
Despite these stellar returns, Enbridge stock currently offers investors a tasty dividend yield of 7.7%, while TC Energy has a yield of 7.2%. Let’s see which TSX dividend stock you should buy at the current valuation.
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The bull case for Enbridge stock
Among the largest TSX companies, Enbridge has returned over 12% annually since 2000, easily outpacing the S&P 500 index, which has gained 9% in this period. So, a $4,000 investment in ENB stock in early 2000 would be worth $53,000 today.
Enbridge is a pipeline and utility company that offers a generous dividend yield to investors. Moreover, the company has raised these payouts by 10% annually since 1995, which is exceptional for an energy company.
But Enbridge is relatively immune to fluctuations in commodity prices as 98% of its cash flows are tied to long-term contracts and rate-regulated structures. With a payout ratio of less than 70%, Enbridge has enough room to reinvest in capital projects and reduce balance sheet debt while increasing its dividends over time.
Enbridge has a robust balance sheet, providing it with the flexibility to invest in capital expenditures and driving future cash flows higher. It recently inked a deal to acquire three natural gas utilities from Dominion Energy. This big-ticket acquisition will be accretive to the bottom line while being transformational for Enbridge in the upcoming decade.
Further, Enbridge aims to expand its base of renewable energy assets, which account for just 3% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 2023.
Priced at 16 times forward earnings, ENB stock trades at a discount of 11% to consensus price target estimates.
Is TC Energy stock a good buy right now?
TC Energy has more than $120 billion in assets that help it generate predictable cash flows across market cycles. It will have another $32 billion in the next five years to expand its base of cash-generating assets.
Similar to Enbridge, roughly 95% of TC Energy’s EBITDA is tied to rate-regulated assets and long-term contracts, allowing it to increase dividends each year for 20 years.
In early 2023, TC Energy disclosed plans to spin off its businesses, creating two premium energy infrastructure companies and unlocking incremental value for shareholders. The two investment-grade businesses should maintain the dividends of the existing entity.
TC Energy will operate segments, including natural gas pipelines, storage, and power. This unified natural gas business provides TC Energy with a utility-like profile, as it delivers one-fourth of the natural gas demand in North America. Comparatively, the liquids pipeline and storage company will be known as South Bow.
While EBITDA for TC Energy is forecast to grow by 7% annually through 2026, South Bow expects EBITDA grow to range between 2% and 3% in the next three years.
The Foolish takeaway
While both TC Energy and Enbridge are energy infrastructure giants, I am bullish on the latter due to its utility-like cash flows. Moreover, the dividend yield for TC Energy will reduce once the spin-off is completed.
