TC Energy (TSX:TRP) and Enbridge (TSX:ENB) are major players in the North American energy infrastructure industry. Both stocks have enjoyed big rallies over the past year and investors who missed the rebound are wondering if TRP stock or ENB stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends.
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TC Energy stock
TC Energy trades near $69.50 at the time of writing. The stock is up more than 35% in the past 12 months but is still shy of the $74 it reached in 2022 before rising interest rates in Canada and the United States led to a pullback that bottomed out around $45 last year.
TC Energy also fell out of favour as costs soared on its 670km Coastal GasLink pipeline project. The final budget is expected to be around $14.5 billion, compared to the $6.6 billion initially cited when the project received the green light in 2018. Coastal GasLink reached mechanical completion near the end of 2023 and is expected to go into commercial operation in 2025. Management did a good job of monetizing non-core assets in the past two years to get the balance sheet in order.
TC Energy is also near completion of a large pipeline in Mexico that is actually expected to be under budget. That asset should be completed and in service by the middle of next year. The two new pipelines will drive revenue and cash flow growth for TC Energy to help support the rest of the capital program, which is scheduled to be about $6 billion per year over the medium term.
TC Energy has increased the dividend annually for the past 24 years. Investors who buy TRP stock at the current level can get a dividend yield of 4.7%.
Enbridge
Enbridge just hit a new multi-year high above $61. The stock is up 30% in the past 12 months, supported by the end of hikes to interest rates announced late last year and the recent rate cuts from the Bank of Canada and the U.S. Federal Reserve. As with TC Energy, Enbridge uses debt to fund part of its growth program. As interest rates soared in 2022 and 2023, investors worried that the added interest expenses would force the company to trim the dividend.
Enbridge’s revenue and cash flow growth are coming from the recent US$14 billion acquisition of three natural gas utilities in the United States and a $24 billion capital program. The company has diversified its asset portfolio in recent years to include export facilities and renewable energy, along with bulking up the utilities business.
Enbridge raised the dividend in each of the past 29 years. Investors who buy the stock at the current level can get a dividend yield of 6%.
Is one a better pick?
A pullback at some point in the near term wouldn’t be a surprise, given the big run these stocks have enjoyed. That being said, both pay attractive dividends that should continue to grow. If you are simply searching for the highest yield, Enbridge is the way to go today. Otherwise, I would probably split a new investment between the two stocks.
