TC Energy (TSX:TRP) and Enbridge (TSX:ENB) have pulled back from their recent 12-month highs. Investors who missed the big rallies in the stocks this year 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) portfolio targeting dividends and total returns.
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TC Energy
TC Energy trades near $65.80 per share at the time of writing. The stock was as high as $70 a few weeks ago but is still up about 26% in 2024.
Most of the gains happened in the past six months after the Bank of Canada and the U.S. Federal Reserve started to cut interest rates. TC Energy’s share price previously fell from $74 in 2022 to around $45 as a result of the sharp increases in interest rates designed to get inflation under control.
TC Energy had to take on extra debt to get its 670km Coastal GasLink pipeline completed. The project reached mechanical completion in late 2023 and is expected to have a final cost of about $14.5 billion compared to the original budget of less than $7 billion.
Management has done a good job of monetizing non-core assets to pay down debt over the past year. TC Energy also completed the successful spinoff of its oil pipeline business in 2024.
Looking ahead, TC Energy is positioned well to move ahead on the rest of its capital program. Coastal GasLink in Canada and another large pipeline project in Mexico are expected to go into commercial service in 2025. Revenue from these assets, along with new ones that will be completed in the coming years, should support steady dividend growth. TC Energy has increased the distribution annually for the past 24 years. At the time of writing, TRP stock provides a yield of 5%.
Enbridge
Enbridge trades near $59.50 at the time of writing. The stock is down a bit in recent days after hitting a multi-year high near $62. Enbridge is still up about 23% in 2024.
The company recently wrapped up the final part of its US$14 billion acquisition of three natural gas utilities in the United States. The deal makes Enbridge the largest natural gas utility operator in North America and is the latest part of the company’s strategy of diversifying the asset portfolio. In the past few years, Enbridge also acquired an oil export terminal in Texas and purchased an American wind and solar developer. In addition, Enbridge has a stake in the Woodfibre liquified natural gas (LNG) facility being built on the coast of British Columbia.
The company is now positioned well to benefit from international demand for North American oil and natural gas while also participating in the energy transition to renewables.
Enbridge just raised the dividend by 3% for 2025. This is the 30th consecutive annual dividend increase. At the current price, investors can get a dividend yield of 6.3%.
Is one a better pick?
Income investors should probably go with Enbridge as the first pick for its higher yield. Dividend growth at the two companies will likely be similar over the medium term.
Investors focused on total returns might want to split a new investment between the two stocks at this level. TC Energy might have more upside potential right now.
