Oil prices have been mostly depressed in 2024, before the US Energy Information Administration lowered its crude oil price outlook for 2025 by $6.50/bbl due to concerns about falling oil demand. Though EIA’s forecasts are higher than the current WTI crude price, the outlook is not optimistic.
Analysts see an uncertain variable in any breakthrough in battery or hydrogen technology, which would make zero-emission vehicles more economically viable and practical and is expected to reduce oil demand over time.
If oil prices fall, upstream exploration and producers will be hit most. At the same time, some midstream energy companies are insensitive to the rise and fall of oil prices and can afford to continue rewarding investors through generous dividends and capital gains.
Enbridge (TSX:ENB) is not only a Canadian midstream energy giant, but also one of the largest pipeline companies in the world. The company is also experiencing rapid growth in its natural gas utility business, further solidifying its overall business model.
Compared to upstream and even downstream businesses, Enbridge’s revenues are relatively stable and less susceptible to commodity price fluctuations, making it more financially stable and reliable.
The business model, dividend sustainability and illustrious dividend payout history (29 consecutive years of dividend growth) mean that Enbridge is a very safe energy stock in the face of an uncertain oil price outlook.
While growth/capital gains potential isn’t this energy stock’s strong suit, Enbridge stock is still up 19% over the past six months. In comparison, the TSX Energy Index is down nearly 5% over the same period. That’s further affirmation of Enbridge’s ability to remain resilient when oil prices weaken. And the 6.1% dividend yield is another compelling reason why many Canadian investors love this stock.
Shares of TC Energy (TSX:TRP) are currently trading close to C$69.50, up more than 35% over the past 12 months. The energy stock bottomed out last year after falling to near C$45 as rising interest rates in Canada and the U.S. put pressure on earnings.
One point where the company has been questioned by investors is the soaring cost of the 670-kilometre Coastal GasLink pipeline project, which is expected to end up with a final budget of about C$14.5 billion, far exceeding the C$6.6 billion budget initially proposed. The project is expected to be in commercial operation by 2025. It is worth pointing out that management has done a good job of monetizing non-core assets over the past two years to get the balance sheet in order.
Meanwhile, TC Energy is nearing completion of a major pipeline in Mexico within budget, which will be in service by the middle of next year. These two new pipelines will drive the company’s revenue and cash flow growth to help support a capital expenditure programme of around C$6 billion a year. This energy stock has managed to increase its dividend in each of the last 24 years, and investors can earn a 4.7% dividend yield today.
