Business Focus:

Enbridge (ENB): ENB primarily specializes in the transportation, distribution, and generation of energy, playing a crucial role in the oil and gas sector. The company operates through multiple business units, including pipelines, gas distribution, renewable energy, and energy services. ENB’s pipeline segment involves the transportation of oil and natural gas, ensuring the efficient flow of energy resources. The gas distribution segment focuses on delivering natural gas to end-users, such as residential, commercial, and industrial customers. Additionally, ENB is actively involved in renewable energy initiatives, contributing to the growing shift towards sustainable and clean energy sources.

TC Energy Corporation (TRP): TRP is a major player in the transportation and generation of energy resources. TRP operates through several business units, including pipelines, power and storage, and Mexico natural gas. In the pipeline segment, TRP is involved in the transportation of oil and natural gas, ensuring the reliable and efficient movement of energy products. The power and storage segment focuses on the development and operation of power generation facilities and storage assets. Additionally, TRP has a presence in Mexico, where it participates in natural gas transmission. The company is known for its commitment to sustainable energy and has undertaken projects in renewable power generation. TRP’s comprehensive approach to energy infrastructure underscores its role in facilitating the movement and delivery of energy resources across North America.

Financial Performance:

Looking at dividend yield, ENB is widely recognized as a consistent dividend payer and offers a slightly higher yield than TRP. ENB yields 7.6% while TRP yields 7.1%. Despite weakness in the oil and gas industry over the last year, both ENB and TRP have significant total returns over the last five years. ENB has generated a total return of 41.6% while TRP has generated 26.3%. Both companies have performed very well in the last five years, but ENB has the clear edge. On the valuation front, TRP displays a discount relative ENB, trading at 13.3X forward earnings vs. ENB at 17.7X forward P/E. The valuations make sense here as ENB has had superior performance over the last five years in addition to paying a higher yield. Neither company is overly expensive, but value focussed investors may side with TRP due to the cheaper multiple.

Financial Metrics and Forward Estimates:

 The table below compares the financial metrics and stats between ENB and TRP. ENB is a much larger company than TRP, and is expected to grow sales slightly more than TRP next year. ENB also has the edge in EPS growth next year, although both companies are forecasted to see a drawdown in EPS in 2024. ENB is much stronger when considering net margin despite TRP having a higher gross margin. Both names are significantly levered on an absolute basis due to the nature of the oil and gas business. On a relative basis ENB is in a safer position when considering its debt/equity ratio is a whole 0.8x lower than TRP’s.

Investment Outlook:

Both ENB and TRP are top players amongst Canadian oil and gas companies and present solid opportunities for investors, particularly due to the high yield both offer. TRP presents an interesting alternative to ENB but at a smaller size it inherently takes on more risks. On a growth basis, both companies are quite in similar terms of outlook with marginal growth in revenues and drawdowns in EPS expected in 2024, but ENB does have a slight edge. ENB is also stronger in other financial areas while also giving investors a better yield.

The decision between ENB and TRP can be summarized by whether an investor places more importance on stability versus value. TRP is cheaper compared to ENB, but for justifiable reasons such as a weaker growth outlook, lower historical return and lower dividend yield. Growth for both companies will be tied to demand from the oil and gas industry, but ENB has the edge as things stands due to its size and shareholder returns.

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