This Canadian Energy Infrastructure Stock May Offer You What Enbridge Can’t

Canadian Energy Infrastructure Stock
Published on: January 22, 2024

Recently, there have been signs of recovery in Canadian energy stocks, with pipeline giant Enbridge Inc (TSX:ENB) once again attracting investors’ attention due to its strong dividend performance. However, while the dividends are good, the stock price increase is also important. It is regrettable that Enbridge’s stock price has not risen in the past 5 years, consistently lingering between 45-50 Canadian dollars, with no visible signs of change.

Analysts Are Also Hesitant to Be Too Bullish

Although Enbridge remains an absolute leader in the oil pipeline and transportation industry and its stock still deserves a premium, with the current dividend yield reaching 7.58%, analysts have given it a “hold” rating.

The reason for this is that although the company’s long-term contracts will continue to bring stable earnings before interest, taxes, depreciation, and amortization (EBITDA), thereby maintaining its dividend growth trend, the recent slowdown in dividend growth over the past few years is an undeniable fact, and the growth rate is also lower than that of other energy stocks. In addition, under the backdrop of the transition to renewable energy, the future of pipeline companies also faces uncertainty.

In Comparison, There Is More Potential in This Canadian Energy Infrastructure Stock

Supported by current and future energy infrastructure projects, there is a significant demand for a substantial rebound in the currently oversold TC Energy Corp (TSX:TRP) stock price. The company’s natural gas business and its oil and gas pipeline company will continue to create stable profits and have signed long-term contracts similar to Enbridge. In addition, the expected construction spending for the Coastal GasLink pipeline is only half that of 2023, significantly reducing the stock’s risk.

All of these factors will help further TC Energy’s dividend growth, attracting investors’ attention. But compared to Enbridge, the company’s stability is higher in the next two to three years, its ability to grow dividends before 2025 is stronger, and its valuation is significantly lower than its competitors.

What Can TC Energy Offer to Investors?

By investing in TRP now, you are buying a fundamentally sound and undervalued stock. The stock price has fallen by 10% in the past year, with a current price-to-sales ratio of 3.41, a price-to-book ratio of 1.74, and analysts have raised their target price to 60 Canadian dollars. At the same time, the current dividend yield is 7.11%, significantly higher than the 5-year average of 5.59%.

If you invest 10,000 Canadian dollars in TC Energy stock now and the stock price rises to 60 Canadian dollars as expected, you would receive a capital gain of 1,520 Canadian dollars as well as a dividend income of 714.24 Canadian dollars, resulting in a total passive income of 2,234.24 Canadian dollars. This is something you cannot obtain by investing in Enbridge.

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