Better Buy for Dividends: TD Stock or Enbridge Stock?

TD (TSX:TD) and Enbridge (TSX:ENB) are top TSX dividend-growth stocks that now trade at much lower prices than where they were a year ago. Investors seeking reliable dividend stocks to buy for portfolios focused on passive income are wondering if TD or Enbridge is now oversold and a good stock to buy.

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TD Bank

TD is Canada’s second-largest bank with a current market capitalization of close to $141 billion. The stock trades near $77 per share at the time of writing compared to $93 in February and as high as $108 in early 2022.

Over the past year, investors have become negative on bank stocks due to concerns that soaring interest rates will trigger a wave of commercial and retail loan defaults as businesses and households get hit by rising debt payments. TD and its Canadian peers reported higher provisions for credit losses (PCL) in their fiscal second-quarter (Q2) of 2023 earnings reports, so there is evidence that higher rates are starting to push some borrowers into difficult financial situations. The trend is expected to continue and could get worse if a deep recession occurs or if interest rates move higher and stay elevated for the next few years.

That being said, the pullback in TD’s share price might be overdone. The bank remains very profitable, generating adjusted net income of $3.75 billion in the most recent quarter compared to $3.71 billion in the same period last year.

TD is sitting on significant excess capital that can be used to buy back stock, increase the dividend, or pay out a bonus dividend to shareholders. The bank recently cancelled its planned US$13.4 billion all-cash acquisition of First Horizon. As such, TD has ample capital to ride out an economic downturn and could even look to make another purchase while bank valuations are down.

TD’s compound average annual dividend-growth rate is about 10% over the past 25 years. Investors who buy the stock at the current level can get a 5% yield.

Enbridge

Enbridge recently hit a 52-week low below $48 per share and currently trades near $48.50. The stock was as high as $59.50 in June last year, so there is decent upside potential when the energy infrastructure sector rebounds.

Enbridge operates oil pipelines, oil storage, and oil export assets. The company also has large natural gas operations with distribution utilities, transmission, and storage. Enbridge is a partner on the Woodfibre liquified natural gas (LNG) facility being built to export LNG to buyers in Asia and other regions. In addition, Enbridge is expanding its renewable energy assets in both North America and Europe.

Enbridge reported Q1 2023 earnings that were in line with the same period last year. Management is targeting earnings-per-share growth of about 4% through 2025. Distributable cash flow growth is expected to be about 3%. The $17 billion capital program should support higher revenue and cash flow in the coming years.

Enbridge raised the dividend in each of the past 28 years. The payout provides and annualized yield of more than 7% at the time of writing.

Is one a better pick today?

TD and Enbridge pay attractive dividends that should continue to grow and both stocks now appear oversold. If you only buy one, I would probably make Enbridge the first choice for a portfolio targeting passive income. TD might be a more attractive pick for contrarian investors who are focused on long-term total returns.

The post Better Buy for Dividends: TD Stock or Enbridge Stock? appeared first on The Motley Fool Canada.

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The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.