Surging energy stocks made the sector the fourth-best performer (+17.3% year-to-date) as of October 4, 2024. Also, the sector has gained nearly 27% over the past year. The industry players’ earnings growth (34% per year over three years) is likewise stellar.
If you want exposure to this heavyweight sector, the best in the current lot is TC Energy (TSX:TRP) or Enbridge (TSX:ENB). The oil and gas midstream industry rivals are popular and reliable passive income providers. Choosing between the two dividend stocks is challenging, although one could have better growth potential due to a significant business development.
Four core businesses
Enbridge describes itself as the first-choice energy delivery company in North America. The $121.4 billion energy infrastructure giant takes pride in and relies on four core businesses to deliver growth. Its liquids pipelines feature the world’s longest (29,104 km) and most complex oil and liquids transportation system.
The natural gas transmission and midstream network that stretches across North America and the Gulf of Mexico is equally extensive (30,500 km). Enbridge boosted its gas utilities and storage operations by acquiring Dominion Energy’s three utility companies in the United States.
Enbridge wants to be at the front and center of the global transition to a cleaner energy future. The company commits to invest around US$7 billion in capital to renewable energy and power transmission projects. Its renewable energy and power generation assets could eventually produce 5,270 megawatts (MW) gross of zero-emission energy.
Management expects Enbridge’s diversified portfolio of first-choice assets to deliver all forms of energy and generate predictable cash flows simultaneously. The ongoing concern is maintaining financial flexibility for business growth and returning capital to shareholders. With 80% of EBITDA having inflation protection, the projected EBITDA growth is 1% to 2% per year.
According to its President and CEO, Gregory Ebel, Enbridge’s asset footprint and large incumbent asset position in North America are competitive advantages. Besides achieving adjusted earnings per share guidance for 18 consecutive years, Enbridge is a dividend aristocrat owing to 29 years of annual dividend hikes. If you invest today, the share price is $55.70, while the dividend yield is 6.6%.
Strategic Move
On October 1, 2024, TC Energy completed the spinoff of its Liquids Pipelines business, a strategic move to focus on the following business lines: natural gas, natural gas storage, and power and energy solutions. South Bow, an independent and stand-alone entity in post-spinoff, will take on the liquids pipelines.
The erstwhile energy infrastructure company is now a $63.5 billion natural gas and energy solutions company. TC Energy remains low-risk, and diversified, while the business is opportunity-rich with a long-term view.
Moreover, the natural gas segment, a perennial standout performer, has become the foundation of growth. Management expects consistent and prolonged growth into the future. At $61.53 per share, the dividend offer is 6.3%.
Higher growth rates
Enbridge and TC Energy are quality investments, although the shift in focus to natural gas infrastructure is a strategic advantage for the latter. Given the global energy trends and ever-growing demand for natural gas, TC Energy could also deliver higher growth rates than Enbridge (and South Bow, too).
