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Enbridge (TSX:ENB) and BCE (TSX:BCE) are known for offering generous dividends with high yields, attracting retirees and dividend investors looking for passive income. Many are currently assessing whether ENB or BCE stock is undervalued and worth adding to a self-directed portfolio.
Enbridge (TSX:ENB)
Enbridge is a dominant player in the North American energy infrastructure sector, boasting a market capitalization of about $108 billion. This substantial size equips Enbridge with the financial strength to make significant strategic acquisitions in the oil and natural gas sectors, enhancing growth alongside its robust capital program.
Currently trading around $50 per share, Enbridge's stock hit a 12-month low of approximately $43 last fall before attracting bargain hunters, spurred by expectations of interest rate cuts in 2024. With the Bank of Canada already reducing rates by 0.25% and the U.S. Federal Reserve potentially following suit as early as September, the lower borrowing costs are likely to boost Enbridge's stock further.
Enbridge is nearing the completion of its US$14 billion acquisition of three U.S. natural gas utilities. The company also has $25 billion in secured capital projects planned over the next few years. As these new assets generate additional revenue, Enbridge anticipates annual growth in distributable cash flow of 3% through 2026 and 5% thereafter, supporting continued annual dividend increases in the same range.
Having raised its dividend for 29 consecutive years, Enbridge offers investors a 7.4% dividend yield at the current share price. It's plausible that ENB could climb back to its 2022 high of around $59 by the end of 2025.
BCE (TSX:BCE)
BCE represents a more contrarian choice among these two stocks. The communications giant's share price dropped from $74 in 2022 to below $43 recently. High interest rates have contributed significantly to this decline, coupled with revenue challenges in BCE's media division. In response, management has cut approximately 6,000 jobs over the past year and downsized its radio and television operations to meet financial targets.
Despite these challenges, BCE expects 2024 revenue to be on par with 2023, driven by its mobile and wireline network segments. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected to be slightly higher in 2024 compared to the previous year, supporting its substantial dividend heading into 2025.
BCE's dividend yield is currently 8.7% at a share price of around $46, having exceeded 9% during a recent dip to a decade-low. While there's a remote chance of a dividend cut if revenues decline, the significant drop in share price seems overdone, suggesting a potential rebound as investors shift from tech stocks to undervalued dividend stocks.
Which is the Better Bet?
BCE offers a higher yield and possibly more upside on a rebound but carries higher risk. Enbridge's yield is also attractive, with potential for continued upward movement if U.S. interest rates decrease in the coming months.
For contrarian investors who can tolerate higher risk, BCE might be appealing at current levels. However, Enbridge seems a safer choice today, or perhaps consider splitting an investment between the two stocks.
