Enbridge Inc (TSX:ENB) and TC Energy (TSX:TRP) are two of Canada’s best known energy companies. The former is a midstream pipeline company and natural gas utility, while the latter is a gas pipeline company and power generation firm. The overlap between these two companies’ business activities is considerable, yet the specifics of how they operate differs, which makes their shares worth comparing. In this article, I will compare Enbridge and TC Energy stocks side by side so you can decide which midstream energy stock is a better fit for your portfolio.
The case for TC Energy
The main thing that TC Energy has going for it relative to Enbridge is superior profitability metrics. In the trailing 12-month period, TRP delivered the following margins and returns on equity/capital.
- Gross profit margin: 68%.
- Operating income (EBIT) margin: 43%.
- Net margin: 24%.
- Free cash flow (FCF) margin: 31%.
- Return on equity (ROE): 14%.
- Return on capital (ROC): 3.7%.
Overall, these metrics are quite impressive, with the FCF margin and ROE in particular being far above average. Now let’s take a look at the same metrics for Enbridge:
- Gross profit margin: 41.6%.
- Operating income (EBIT) margin: 17.8%.
- Net margin: 9.4%.
- Free cash flow (FCF) margin: 2%.
- Return on equity (ROE): 9.5%.
- Return on capital (ROC): 4.3%.
Apart from the ROC, all of these metrics are lower for Enbridge than for TC Energy. With profitability metrics, higher is generally better, so TC Energy wins on this comparison.
Another factor that TC Energy has going for it is dividend safety. In the TTM period, TRP had a 67.5% payout ratio – excellent for a midstream company –while ENB had a 93% payout ratio. Over the years, Enbridge has had a consistently high payout ratio, as is typical for the midstream energy sector. TRP has a much more sustainable dividend than ENB does.
The case for Enbridge
The case for buying Enbridge instead of TC Energy is quite robust. The company has more consistently positive cash flows, more growth, and arguably a cheaper valuation than TRP.
First, let’s look at Enbridge’s cash flow situation. The company’s free cash flows have been positive in each of the last three full years, as well as in the trailing 12-month (TTM) period. TC Energy had negative free cash flows in 2023 and 2024 — although the $4.5 billion worth of FCF in the TTM period was a huge improvement over 2024 and a sign of progress.
Enbridge also grew the top line more than TC Energy did in the TTM period. In that period, Enbridge grew its revenue 32%, while TC Energy grew its revenue 24%. To be fair, some of TRP’s growth metrics were better than ENB’s; for example, TRP’s earnings declined less than ENB’s did. However, revenue is less influenced by accounting factors than earnings are, and top line growth tends to be more indicative of long-term trends than bottom line growth is.
Finally, Enbridge is arguably a cheaper stock than TC Energy, trading at 2.5 times book value and 2.3 times sales, while the latter company trades at 3.3 times book and 5.5 times sales.
For the reasons above, I think Enbridge is a better value than TC Energy today on the whole.
