TC Energy: A Better Midstream Infrastructure Choice Than Enbridge

Enbridge and TC Energy are two leading Canadian midstream infrastructure giants. They offer investors a combination of attractive financials, stable cash flows, and low-risk business models. TC Energy is considered the better choice due to its lower debt levels and more diversified asset base. Enbridge, on the other hand, has a higher debt-to-equity ratio and relies more heavily on a single customer, Kinder Morgan. Overall, TC Energy is a more stable and secure investment option.

Enbridge (NYSE: ENB) and TC Energy (NYSE: TRP) are two leading Canadian midstream infrastructure giants that offer investors a combination of attractive financials, stable cash flows, and low-risk business models. While both companies have their strengths, TC Energy is often considered the better choice due to its lower debt levels and more diversified asset base.

Enbridge, a diversified midstream giant, has a strong balance sheet with a BBB+ credit rating and a leverage profile that is declining due to significant growth projects. However, it relies heavily on a single customer, Kinder Morgan, for a significant portion of its revenue. This reliance on a single customer could pose a risk to Enbridge's cash flow stability. Moreover, Enbridge's debt-to-EBITDA ratio is slightly higher than that of TC Energy, which could make TC Energy a more attractive investment option for risk-averse investors.

On the other hand, TC Energy has a more diversified asset base, with a significant exposure to natural gas pipelines and a strong position in the AI boom. Its business model is utility-like, with 77% of its expected EBITDA regulated, and it has delivered 25 straight years of dividend growth. TC Energy's debt-to-EBITDA ratio is around 4.7x, which is within its target range, and its leverage ratio is very low compared to other utility businesses. Additionally, TC Energy's power and energy solutions portfolio has exposure to nuclear power, which is expected to boom in the AI era.

In terms of valuation, both companies are trading for very similar next 12-month enterprise value to EBITDA multiples, with TC Energy trading at 12.67x and Enbridge trading at 12.63x. However, TC Energy has a slight edge in the dividend yield department with a 4.9% next 12-month dividend compared to Enbridge's 5.8%. Both companies are likely to grow their dividends at a similar 3-5% annualized dividend per share CAGR moving forward.

However, TC Energy looks poised to generate significantly stronger EBITDA growth moving forward, with it likely to deliver a high single-digit EBITDA CAGR, whereas Enbridge is likely going to deliver closer to a 5% EBITDA CAGR. The main reason for this is that TC Energy is effectively a natural gas pure play with some additional exposure to other high-growth power generation businesses like nuclear, whereas Enbridge has nearly half of its business focused on much slower-growing oil and refined products businesses.

Both companies face similar risks, including operational and regulatory risks, interest rate risk, and geopolitical risk. However, TC Energy's more diversified asset base and lower debt levels make it a more stable and secure investment option compared to Enbridge.