Enbridge and BCE, two prominent Canadian companies, are currently trading at discounted prices compared to their highs in 2022. This has caught the attention of contrarian investors who missed out on the previous market rallies. Now they are wondering if investing in either Enbridge (ENB) stock or BCE stock would be a good move for their self-directed Tax-Free Savings Account (TFSA) portfolios focused on passive income.
Enbridge, a major player in the North American energy infrastructure sector, has a market capitalization of around $100 billion. The company’s growth stems from internal development projects and strategic acquisitions. Recently, Enbridge made a significant deal by purchasing three American natural gas utilities for $14 billion. This move helps Enbridge diversify its revenue stream and positions it to benefit from the expected transition to hydrogen fuel and renewable energy. In addition to its natural gas utilities in Canada, Enbridge already carries 20% of the natural gas used in the United States through its existing transmission infrastructure. The company is also expanding by building new pipelines to connect to liquified natural gas (LNG) terminals on the Gulf of Mexico. Enbridge is also involved in the Woodfibre LNG export project in Canada, which is set to be operational by 2027. While the core oil pipelines and oil export business remain essential, Enbridge is also actively participating in the renewable energy sector, having acquired a wind and solar developer last year.
Enbridge’s stock price currently stands around $47 per share, down from $56 in January. The decline can largely be attributed to rising interest rates, which increase debt costs and pose challenges to the viability and profitability of certain projects. However, the pullback appears to be overdone, and Enbridge expects revenue and distributable cash flow growth in the coming years, which should support ongoing dividend increases. In fact, the company has raised its dividend for 28 consecutive years. At present, ENB stock offers an attractive dividend yield of 7.5%.
BCE, the largest communications company on the TSX with a market capitalization near $50 billion, is also trading below its previous high. The stock currently trades at just under $55 per share, down from $65 in May. This decrease is primarily due to increased interest rates imposed by the Bank of Canada in an effort to manage inflation. Despite these headwinds, BCE anticipates delivering solid results in 2023, with their core mobile and internet subscription businesses performing well and offsetting challenges in the media group, where advertising revenues are declining. BCE has provided guidance for revenue and free cash flow growth in 2023, suggesting another dividend increase for 2024. BCE has a successful track record of raising its dividend by at least 5% annually for 15 consecutive years. At the current price, BCE stock offers a compelling dividend yield of 7%.
While both Enbridge and BCE present enticing opportunities, there are slight differences to consider. Enbridge currently offers a higher yield, while BCE may have slightly better dividend growth potential in the coming years. However, both stocks seem oversold at their current prices and are likely to experience a rebound when interest rates begin to decline. Given this, it may be wise to split a new investment between ENB and BCE, taking advantage of the potential benefits offered by both companies.
1. Tax-Free Savings Account (TFSA): A savings and investment account introduced in Canada in 2009 that allows individuals to contribute a specified annual amount which is not subject to tax on the interest, dividends, or capital gains earned within the account.
2. Market Capitalization: The total value of a company’s outstanding shares of stock, calculated by multiplying the share price by the number of shares.
3. Dividend Yield: The annual dividend payment expressed as a percentage of the current share price.
4. Contrarian Investors: Investors who take positions that are opposite to the prevailing market sentiment, buying assets when they are undervalued or unpopular and selling when they are overvalued or popular.
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