The pullback in the share prices of some of Canada’s top dividend stocks is giving TSX investors seeking passive income a chance to get great yields while setting their portfolios up for decent potential gains.
Enbridge
Most investors know Enbridge (TSX:ENB) for its extensive oil pipeline operations. The company is certainly a major player in that segment, carrying nearly a third of the oil produced in Canada and the United States. Oil demand remains robust globally, and while the shift to electric vehicles will cut into gasoline usage, the need for oil isn’t going to disappear soon, and global demand for reliable North American oil is rising. This is why Enbridge purchased an oil export terminal in Texas for US$3 billion in 2021 and is expanding the facility.
Enbridge also has a large network of natural gas transmission assets and is set to become the biggest natural gas utility operator in North America as it wraps up its US$14 billion acquisition of three natural gas utilities in the United States. The company is also a partner in the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia. As with oil, international buyers are seeking reliable sources of natural gas from countries within stable geopolitical regions. Natural gas is used to fuel power-generation sites that are needed to meet soaring electricity demand from power-hungry artificial intelligence data centres. The transition to renewables will continue, but wind and solar power have limitations. Gas-fired power generation is viewed by many countries as a good option that produces less emissions than burning oil or coal.
Enbridge’s export assets, along with the infrastructure to move oil and gas, put the company in a good position to benefit from shifts in international energy markets. To round out the portfolio, Enbridge continues to expand its renewable energy group in both North America and Europe.
Enbridge isn’t as cheap as it was last fall when the share price dipped to $43, but at the current price near $48.50, the stock still looks attractive, and more upside should be on the way as interest rates decline. The Bank of Canada has already trimmed its target rate by 0.25%. The U.S. Federal Reserve is expected to start cutting rates before the end of 2024 or in early 2025. Once this happens, more money could flow back into ENB stock. The company uses debt to fund part of its capital program. Lower rates should improve profits and will free up more cash for payouts.
Enbridge increased the dividend in each of the past 29 years. The current $25 billion capital program should provide enough growth to distributable cash flow to support ongoing dividend hikes. Investors who buy ENB stock at the current level can get a dividend yield of 7.5%.
TC Energy
TC Energy (TSX:TRP) is another leading Canadian energy infrastructure company. Natural gas is the core focus, with 93,000 km of natural gas pipeline infrastructure and roughly 650 billion cubic feet of natural gas storage capacity across Canada, the United States, and Mexico. TC Energy also owns oil pipelines that it plans to spin off into a separate business this year. Power-generation facilities round out the asset portfolio.
TC Energy saw the budget for its Coastal GasLink pipeline more than double to $14.5 billion. The project reached mechanical completion in 2023 and is expected to start moving gas to a new LNG facility on the B.C. coast next year.
Management sold an interest in some U.S. assets in 2023 for $5.3 billion, and sales of $3 billion are anticipated this year. The funds will go a long way to reducing debt and shoring up the balance sheet to pursue additional capital projects. Coastal GasLink recently completed a $7.15 billion bond deal to refinance debt.
TC Energy raised the dividend in each of the past 24 years. Capital investments will be about $8 billion in 2024 and are expected to trend in the $6 billion to $7 billion range over the next few years. As new assets go into service there should be adequate cash flow growth to support ongoing annual dividend increases.
TC Energy trades below $52 per share at the time of writing. It is off the 12-month bottom, around $44, but is still well below the $74 it reached in 2022, so there is a decent upside opportunity. Investors who buy at the current level can get a dividend yield of 7.4%.
The bottom line on high-yield TSX stocks
Enbridge and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting high-yield passive income, these stocks look cheap right now and deserve to be on your radar.
