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Enbridge vs. TC Energy: Which Blue-Chip Canadian Stock Is a Better Dividend Bet?

Enbridge blue-chip dividend stock

Two dividend stocks, two solid records, two investor favorites. Both Enbridge and TC Energy are giants in the midstream energy space in North America and are highly rated by retail and institutional investors. With 2021 turning out to be quite a volatile year, and predictions of an energy recovery in the second half, stable businesses like these could be the best bets for investors.

Dividend stocks like Enbridge and TC Energy are great because they offer the opportunity of significant capital appreciation apart from attractive dividend payouts. Let’s deep-dive into the fundamentals of these dividend-paying giants to see which is a better stock to buy right now. 

Enbridge stock has a forward yield of 6.8%

Enbridge is the leading midstream company in North America. It mainly focuses on the transportation, distribution, and generation of liquid hydrocarbons and crude oil with diversified assets which include crude oil and natural gas. It is also quickly expanding its renewable energy business.

Enbridge’s contracts are mostly fee-based, so its revenues and earnings are not impacted by oil prices in the global markets. Enbridge has a three-tiered moat making it one of the most formidable companies in its space. 

First, it has approximately 27,564 kilometers of active crude pipeline across North America—including 13,883 km of active pipe in the United States, and 13,681 km of active pipe in Canada. Second, around 95% of its contracts are with investor-grade counterparties. Third, the company’s relationships with its clients are solid thanks to years of work that has gone into building and sustaining them.

Any new player who wants to grab a slice of Enbridge’s pie will have to work extremely hard. Enbridge also charges competitive rates ensuring its pipelines are in high demand.

The hidden ace up Enbridge’s sleeve is its foray and expansion of the renewable assets business. To date, Enbridge’s renewable energy projects (either operating or under construction) have the capacity to generate 5,082 megawatts (MW) gross of zero-emission energy.

Enbridge has raised its dividend by 10% annually for 26 consecutive years, making the energy heavyweight an attractive stock for investors looking for passive income. At its current share price of $49.43, it has a forward dividend yield of 6.8%. Enbridge says it will grow its cash flow by at least 5-7% annually, through 2023. It will deploy approximately $10 billion dollars worth of CAPEX this year which will help it increase cash flows and support higher dividend payments.

Enbridge has also delivered outsized gains for long-term investors. Its stock has moved up 21% from $40.71 at the end of December 2021. This, along with the fact that Enbridge has been a regular dividend payer for over 66 years now has made it a favourite stock for income and value investors.

Oil volumes fell in 2020 as most of the world went into a lockdown and airlines across the globe suspended operations. However, demand for energy is slowly getting back to normal and this is good news for Enbridge investors. The company’s natural gas plays are also a great counter to oil. From the looks of it, as demand for oil keeps falling in the future (coal is almost on its way out), natural gas will step up to become the primary fossil fuel.

Enbridge is expected to make significant growth in visible cash flow right through 2023 through its secured midstream developments, making a solid addition to your portfolio.

The bull case for TC Energy

TC Energy is a  major North American midstream energy company headquartered in Calgary, Alberta. The company develops and operates energy infrastructure in the US, Canada, and Mexico. It operates in three core businesses – Energy, Liquid Pipelines, and Natural Gas Pipelines.

The company finally pulled the plug on its ambitious and controversial Keystone XL pipeline project. The writing was on the wall as US President Joe Biden kept up his promise to cancel the project. The scrapping of the project will cost TC around $2.2 billion in impairment fees alone.

The effect of this cancellation will be felt by the company and is bound to go beyond the financial hit taken by the company. The pipeline was supposed to add 830,000 barrels per day to TC’s Canadian export capacity and was expected to help it gain leverage south of the border.

The company’s management has already said that it plans to invest around $25 billion over the next few years into other energy projects. While it will take some time before the impact of a megaproject cancellation is fully erased, TC Energy is not lamenting on the side.

TC Energy stock is currently trading at $63.98 and offers a sizable forward dividend yield of 5.44%. Such a tasty yield, particularly in this low interest-rate environment, is very attractive to investors. The company has managed to increase its dividends for the last 21 consecutive years, and it is expected that the company will be able to continue in a similar trend for the future too. It is expecting to increase its dividends by 5-7% annually in the near term.

The last four quarters have seen TC Energy post an EPS of $4.18. Its dividend payout is $3.48 which translates into a payout of 80%. The payout might be on the higher side but it is very manageable.

Almost 95% of the company’s earnings are derived from rate-regulated contracts that provide it with both visibility and earnings stability. Thanks to such low-risk operations, the company has managed to continue to raise dividends during the 2008 financial crisis as well as the 2020 pandemic.

And while the Keystone pipeline cancellation is a significant hit to the company, its stock price was barely affected. That’s because markets had already priced in the cancellation into the stock price. As we said, the writing had been on the wall for quite some time.

The energy space is recovering at a fast pace, and natural gas is a relatively cleaner fossil fuel. TC Energy is one of the largest natural gas transporters in North America and this will hold it in good stead in the years to come.

TC Energy shareholders have already gained over 23% in 2021. Pre-pandemic, on January 1, 2020, TC Energy had touched $73 levels. There is still 14% left for TC Energy stock to meet its pre-pandemic mark.

Which dividend stock is better right now?

Investors can be assured of increased dividend payouts every year in both stocks. For the short term, TC Energy seems to have a better chance of capital appreciation. It is very likely that the stock could break its pre-pandemic mark. However, if investors are looking for a long-term holding, Enbridge seems like a better bet.

It is more diversified with a much stronger balance sheet. It also has a higher forward dividend yield than TC Energy. Passive income investors will prefer Enbridge. A smart option would be to split your investment among both stocks.

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