Enbridge (TSX:ENB) and TC Energy (TSX:TRP) have soared in the past year. Investors who missed the rally are wondering if ENB stock or TRP 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 dividend income and total returns.
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Enbridge
Enbridge trades near $64 at the time of writing. The stock is up 33% in the past 12 months and recently reached a record high.
Interest rates have been the big story for the energy infrastructure sector in the past three years. Enbridge, along with its peers, grows through acquisitions and capital projects that cost billions of dollars. Debt is used to fund part of the growth program, so there can be a negative impact on profits when interest rates soar as they did in 2022 and 2023. This is why ENB stock fell from $59 in June 2022 to as low as $44 in late 2023. The subsequent rebound occurred as investors shifted from fears of more rate hikes to expectations for rate cuts. As soon as the Bank of Canada and the U.S. Federal Reserve began cutting rates last year, Enbridge and its peers picked up a new tailwind.
Looking ahead, rates are expected to decline further in Canada and the United States in 2025. The Bank of Canada just announced another 0.25% rate cut. The U.S. Federal Reserve, however, might put cuts on hold due to sticky inflation and uncertainty around the impact on the economy of planned tariffs by the Trump administration. As such, investors should brace for some near-term turbulence.
That being said, Enbridge will see benefits in 2025 from its recent US$14 billion purchase of three natural gas utilities. In addition, the company has a $27 billion capital program on the go to drive revenue and cash flow growth. Investors should see dividend increases continue in line with anticipated 3% annual growth in distributable cash flow. Enbridge has raised the dividend in each of the past 30 years. At the current share price, investors can get a dividend yield of 5.9%.
TC Energy
TC Energy (TSX:TRP) trades near $65 at the time of writing. The stock was as high as $70 in November but is still up more than 20% in the past 12 months.
TC Energy has done a good job of shoring up the balance sheet after it had to take on extra debt to get its Coastal GasLink pipeline in Canada finished in late 2023. Management monetized non-core assets and spun off the oil pipelines business. Coastal GasLink and another big pipeline project located in Mexico are scheduled to go into commercial operation this year. Those assets, along with the ongoing capital program of roughly $6 billion per year, should drive cash flow higher to support ongoing dividend increases. At the time of writing, the stock provides a yield of 5%.
Is one a better pick?
Enbridge offers a higher yield right now while TC Energy might have better upside potential from the current level. Dividend growth will likely be similar at both companies, so I would probably split a new investment between the two stocks at these prices.
