With no regular income to cover their expenses, retirees will usually be risk-averse investors. They tend to invest in quality dividend stocks to earn a stable and reliable passive income. Against this backdrop, let’s look at the recent performances, dividend payouts, yields, and growth prospects of Enbridge (TSX:ENB) and TC Energy (TSX:TRP) to determine which stock is better for retirees.
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Enbridge
Enbridge is a diversified energy company that transports oil and natural gas across North America under a tolling framework and long-term take-or-pay contracts. Additionally, the company operates a low-risk utility business and is also strengthening its position in renewable energy assets. It sells the power generated from these facilities through long-term PPAs (power-purchase agreements). Further, less than 1% of its EBITDA (earnings before interest, taxes, depreciation, and amortization) is susceptible to commodity price fluctuations, and 80% of its EBITDA is inflation-indexed.
Given its higher asset utilization across its segments and low-risk commercial frameworks, the Calgary-based energy company generates reliable cash flows, allowing it to pay dividends consistently. It has paid dividends uninterruptedly for the previous 70 years and has also increased its dividend at a 9% CAGR (compound annual growth rate) since 1995. Its annualized payout currently stands at $3.77/share, translating into a forward yield of 5.76% as of the August 11th closing price.
Moreover, Enbridge continues to invest $9 to $10 billion annually, executing its $32 billion backlog projects that could become operational over the next five years. Further, it has also strengthened its financial position by lowering its net debt-to-EBITDA ratio from 5 at the beginning of this year to 4.7, lower than the midpoint of its guidance of 4.5 to 5. Considering its growth prospects, the company’s management expects its EBITDA to grow at an annualized rate of 5% for the rest of this decade. Therefore, I believe Enbridge is well-equipped to continue with its dividend growth in the coming years.
TC Energy
TC Energy is an energy infrastructure company that transports natural gas across North America and is also involved in power production and storage. It owns and operates several power-producing facilities with a total capacity of 4.65 gigawatts. Meanwhile, the company earns around 97% of its EBITDA from rate-regulated assets and long-term, take-or-pay contracts, thereby providing stability to its financials. Supported by its reliable cash flows, the company has raised its dividends for the previous 25 years. Its annualized dividend payout of $3.4/share translates into a forward dividend yield of 4.94%.
Moreover, TC Energy is on track to put $8.5 billion worth of assets into service this year, with 70% of the planned assets becoming operational by the end of the second quarter. Additionally, the company’s management expects to make capital investments of $5-$6 billion annually to grow its asset base. Amid these growth initiatives, the company’s management projects its 2027 adjusted EBITDA to come between $11.7 and $11.9 billion. The midpoint of the guidance represents an annualized growth rate of 5.7% compared to its 2024 levels. Its net debt-to-EBITDA multiple has declined from 4.8 at the beginning of this year to 4.75. Considering all these factors, I believe TC Energy could continue paying dividends at a healthy rate.
Investors’ takeaway
Enbridge and TC Energy have delivered total shareholders’ returns of 10.6% and 5.5% this year, respectively. Both the energy infrastructure companies have underperformed the S&P/TSX Composite Index this year, which has delivered an impressive return of 12.3%. However, given their reliable cash flows, consistent dividend payouts, and healthy growth prospects, both companies would be ideal for retirees. However, I am more bullish on Enbridge due to its stronger track record of dividend growth and higher yield.
