Most utility names have been under tremendous pressure recently due to the narrative of rates staying higher for longer, which not only makes the industry profitability squeeze as the industry carries lots of debt but also makes these names less attractive compared to the risk-free yield of 5%+. Having said that, we think we are near the peak of the interest rate hikes, especially in Canada, with very weak economic growth now. We think utility companies with strong balance sheets could experience decent performance going forward as investors fret less about rates. We like both ENB and CU but prefer ENB due to its larger scale, strong balance sheet and track record of operation. We think ENB is a better name and deserves a premium valuation.
For example, ENB is trading at 16.0x Forward P/E, and CU is trading at 12.8x Forward P/E.
Dividend per share growth in the last five years for ENB was 11%, while it was 6.5% for CU.
ENB’s net debt/EBITDA is 5.6x, and CU net debt/EBITDA is 5.3x