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Energy Sector Resilience: Navigating Volatility with Strategic Picks

Rhys NorthwoodSunday, May 18, 2025 1:37 am ET

28min read

The energy sector’s recent performance has diverged sharply, with select companies capitalizing on rising commodity prices and infrastructure dominance while others face operational headwinds. For investors, this is a pivotal moment to distinguish between winners and losers in an environment of macroeconomic uncertainty. Two Canadian energy giants—Enbridge (ENB) and TC Energy (TRP)—offer contrasting narratives, underscoring the importance of strategic stock selection. Let’s dissect the data to reveal where value lies today.

The Case for Enbridge: A Fortress Balance Sheet and Commodity Exposure

Enbridge’s Q4 2024 results demonstrate why it remains the gold standard in energy infrastructure. The company reported adjusted EBITDA growth of 13% to $18.6 billion, driven by its liquids pipelines, gas utilities, and renewables segments. Its acquisition of three U.S. gas utilities—adding $496 million in Q4 EBITDA—highlighted strategic capital allocation. Meanwhile, its debt-to-EBITDA ratio of 5.0x (targeting 4.5x by 2025) underscores financial discipline.

The company’s 30th consecutive dividend hike (3% increase to $0.9425/share quarterly) further solidifies its appeal to income seekers. Enbridge’s diversified revenue streams—93% of 2024 EBITDA from regulated or contracted assets—shield it from commodity price swings. Key projects like the $19 billion U.S. gas utility acquisition and the $1.1 billion Tennessee Ridgeline expansion will fuel growth, while its renewables division (up 67% in Q4 EBITDA) positions it for the energy transition.

TC Energy: Operational Strength, Financial Constraints

TC Energy’s operational milestones—such as the record-breaking Southeast Gateway Pipeline’s mechanical completion and Canadian gas delivery records—mask underlying financial challenges. While its full-year 2024 comparable EBITDA rose 5% to $10 billion, Q4 results dipped 4% due to lower AFUDC (construction financing credits) and rising depreciation.

The company’s 3.3% dividend hike to $0.85/share (vs. Enbridge’s 3%) reflects its post-spinoff focus on capital efficiency, but its 2025 outlook warns of lower EPS due to reduced AFUDC and higher project costs. While projects like the $300M Southeast Virginia LNG facility and Bruce Power upgrades are positives, TC Energy’s reliance on regulatory approvals and trade policy (e.g., U.S.-Mexico tariffs) introduces risks absent in Enbridge’s portfolio.

Why Enbridge Outshines in This Cycle

Commodity Exposure Without Commodity Risk: Enbridge’s liquids pipelines benefit from rising oil prices (e.g., WTI averaging $79/barrel in 2024) through toll-based revenue. Its Mainline System operates at 98% capacity, with apportionment driving premium pricing.
Balance Sheet Fortitude: Enbridge’s $26 billion secured growth backlog and 5.0x leverage ratio allow it to weather macro shocks, unlike peers with higher debt loads.
Strategic Capital Recycling: The $129M sale of its East-West Tie stake at a 17x EBITDA multiple signals its ability to monetize non-core assets, reinvesting proceeds into high-return projects.

Investment Action: Prioritize ENB, Monitor TRP Cautiously

The energy sector’s resilience hinges on companies with low-risk cash flows, robust balance sheets, and commodity-linked infrastructure. Enbridge checks all boxes:
- DCF growth: DCF rose 6% in 2024 to $12.0 billion, with 2025 guidance of $5.50–5.90/share.
- Project pipeline: $8B in new organic projects in 2024, including Permian Basin expansions.

TC Energy, while operationally strong, faces headwinds from project execution costs and regulatory uncertainty. Investors should avoid overpaying for TRP until its 2025 EPS headwinds are resolved.

Final Verdict

In a sector where differentiation is key, Enbridge’s blend of regulated stability, commodity tailwinds, and disciplined growth makes it a rare buy in energy equities. Its dividend safety and capacity to grow through cycles position it as a core holding for income-focused investors. TC Energy, while not a sell, requires patience until its execution risks are mitigated.

Act now on Enbridge: With its stock trading at 12.5x 2024E EBITDA (vs. TRP’s 14x), there’s margin for upside as oil prices firm and infrastructure demand surges. This is a once-in-a-decade chance to own a cash machine with 30 years of dividend growth behind it.

The energy sector’s resilience is real—but only for those who pick the right stakes. Enbridge is the clear leader here.

Data as of May 16, 2025. Past performance does not guarantee future results.

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