Canadian pipeline companies are excellent buys for income-seeking investors due to their regulated framework, stable cash flows, consistent dividend payouts, and high dividend yields. Against this backdrop, let’s assess Enbridge (TSX:ENB) and TC Energy (TSX:TRP) to determine which would be a better buy right now.
Enbridge
Enbridge transports oil and natural gas through its pipeline network under a tolling framework and long-term take-or-pay contracts. It also operates low-risk natural gas utility assets and 37 renewable energy projects, with a total power generating capacity of 6.6 gigawatts. It sells the power generated from these facilities through long-term power-purchase agreements (PPAs).
With the company generating 98% of its cash flows from these regulated assets, its financials are less prone to commodity price fluctuations and economic cycles. These healthy cash flows have allowed the Calgary-based energy infrastructure company to pay dividends uninterruptedly for 70 years. Additionally, it has increased its dividends at an annualized rate of 9% over the past 30 years, while its forward dividend yield stands at 5.89% as of the June 5th closing price.
Moreover, the energy demand is rising amid economic growth, rapid urbanization, and increasing industrialization, thus driving the demand for Enbridge’s services. Meanwhile, the company’s management has identified $50 billion of growth opportunities across its four business segments. The Calgary-based company plans to invest $9 billion to $10 billion annually, expanding its asset base. Its financial position also appears healthy, with liquidity of $13.4 billion.
Amid these growth initiatives, Enbridge’s management expects adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to increase by 7-9% annually through 2026, followed by a steady 5% annual growth thereafter. Additionally, the company plans to raise its dividend by approximately 3% per year through 2026, with an anticipated increase of 5% annually thereafter.
TC Energy
TC Energy transports natural gas across Canada, the United States, and Mexico. It also operates 10 power-generating facilities, with a total production capacity of 4.3 gigawatts. Last year, the company spun off its liquids pipeline business to focus on natural gas and energy solutions. Supported by its high-quality assets, the company’s earnings and cash flows have been resilient, irrespective of commodity price fluctuations and economic cycles, thereby enabling it to raise dividends for 25 consecutive years. Its forward dividend yield currently stands at 4.84%.
Moreover, TC Energy has planned to make a net capital investment of $6 billion to $7 billion annually to grow its asset base. It is also on track to put $8.5 billion of assets into service this year. Along with these growth initiatives, the company is also working on optimizing its asset utilization, integrating the natural gas pipelines business to capture synergies, and promoting safety practices to improve profitability.
Amid these growth initiatives, the company’s management projects its 2027 adjusted EBITDA to come between $11.7 billion and $11.9 billion. The midpoint of the guidance represents an annualized growth of 8.6% through 2027. Considering its healthy growth prospects, TC Energy is well-positioned to continue raising its dividends in the coming years.
Investors’ takeaway
Supported by healthy financials and interest rate cuts, both companies have witnessed healthy buying this year, with Enbridge and TC Energy delivering total shareholder returns of 8.1% and 6.1%, respectively. Notably, Enbridge and TC Energy trade at reasonable next-12-month price-to-sales multiples of 2.8 and 4.8, respectively.
Although both companies operate regulated, low-risk businesses that generate stable and predictable cash flows and offer healthier growth prospects, I am more bullish on Enbridge due to its higher dividend yield and more attractive valuation.
