Better Buy in February 2024: Constellation Software Stock vs. Enbridge Stock

Constellation Software (TSX:CSU) and Enbridge (TSX:ENB) represent two completely different investing approaches. Which is better?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Constellation Software (TSX:CSU) and Enbridge (TSX:ENB) couldn’t be more different. One is a software serial acquirer that pays a paltry amount of dividends; the other is a pipeline that you buy expecting a dividend and nothing else. The companies and the investment theses behind these shares are diametrically opposed, which is why comparing them makes a lot of sense.

Because Enbridge and CSU represent such different industries, they also stand in for different investing styles (dividend/value investing in ENB’s case and growth investing in CSU’s case). In this article, I will compare Enbridge and Constellation side by side so you can decide which stock (and which investing style) is better suited to your portfolio.

Created with Highcharts 11.4.3Constellation Software + Enbridge PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Value

Enbridge scores a lot better than Constellation on traditional “value” metrics. It has lower price-to-earnings (P/E), price-to-sales, price-to-book and price-to-cash flow ratios than Constellation Software does. As a result of its comparatively cheap valuation, Enbridge has a fairly high dividend yield: 7.77%.

When companies have low P/E ratios, their dividend yields are typically higher than those of companies with high P/E ratios because dividends come from earnings. Constellation Software stock has just a 0.15% dividend yield, which is consistent with its rich valuation compared to Enbridge.

Another factor is dividend policy. Constellation pays out a mere 10% of its earnings as dividends, while Enbridge pays out a whopping 127%. This also contributes to Enbridge’s comparatively higher yield than Constellation, but it does put the dividend at risk.

Growth

When it comes to growth, there’s no question: Constellation Software has got Enbridge beaten.

In the last 12 months, CSU has grown its revenue, earnings and free cash flow at the following rates:

  • Revenue: 28%
  • Earnings per share (EPS): 8%
  • Free cash flow: 48%

For comparison, Enbridge grew at the following rates in the trailing 12-month period:

  • Revenue: -18%
  • EPS: 122%
  • Free cash flow: 37%

Enbridge does score a win on EPS growth, but Constellation wins in more categories. Also, when you pull out to a 10-year timeframe, Constellation shows vastly better growth than Enbridge, as the table below shows:

Enbridge – 10-year compounded growth rates

Revenue: 2.86%.
Earnings: 17.8%.
Free cash flow: N/A
Enbridge – 10 year compounded growth rates

Revenue: 2.86%.
Earnings: 17.8%.
Free cash flow: N/A
Constellation vs. Enbridge: Growth

The table above makes clear that Constellation has far better long term growth than Enbridge does. Having looked at the value and growth factors, we can now turn to the most important factor of all: management skill.

Management skill

When it comes to management skill, it appears that Constellation Software has an edge over Enbridge. CSU’s chief executive officer, Mark Leonard, has one of the best capital-allocation track records of all time and a great reputation on Wall Street and Bay Street. Enbridge’s executives are not nearly as well known and have questionable policies, such as raising dividends in periods when revenue is declining. On the whole, I would give Constellation the edge in management skills.

Foolish takeaway

Taking everything into account, Constellation Software appears to be a better buy than Enbridge. It’s a little more expensive, but it has better leadership and a much more sustainable dividend. I’d expect its stock to keep outperforming Enbridge’s.

Should you invest $1,000 in Advanced Micro Devices right now?

Before you buy stock in Advanced Micro Devices, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Advanced Micro Devices wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software and Enbridge. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

protect, safe, trust
Dividend Stocks

How I’d Allocate $1,000 in Defensive Stocks in Today’s Market

These defensive stocks are outperforming the broader market despite economic uncertainty, providing stability, income, and growth.

Read more »

Piggy bank and Canadian coins
Dividend Stocks

Where I’d Invest My Savings in the TSX Today

These two TSX stocks would be my first picks if I were putting more money into the stock market today.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

How I’d Adjust My Portfolio to Benefit from Canadian Dollar Movements

TSX stocks benefit from Canadian dollar movements, although the loonie will be under pressure in 2025 due to trade uncertainty.

Read more »

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

5 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These Canadian stocks have paid dividends for decades, making them reliable investments to generate regular passive income.

Read more »

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »