This Company Hasn’t Missed a Dividend Payment in 60 Years!

This stock has increased its dividend 111,400%.

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I felt nauseous and queasy, like a giant pit was sitting in my stomach. At that moment, I would have rather crawled under a rock than ever buy a stock again.

It was mid 2009 – the height of the financial crisis. Companies were cutting their distributions left and right. Suddenly my steady stream of dividend income had dried up.

It was then that I realized that building an income portfolio that could last over the long haul required more than identifying high yield stocks. I had to find companies with sustainable distributions that could survive the test of time. Unfortunately, not many companies meet this criteria.

But this firm does. In fact, it has dominated its industry for over half a century, while paying a dividend to shareholders every year since 1953 — when Louis St. Laurent was Prime Minister. I’m talking, of course, about Enbridge (TSX: ENB, NYSE: ENB).

How safe is your portfolio from a dividend cut?
Enbridge is one of those forever stocks; a blue-chip, cash-rich firm with a sustainable competitive advantage.

The company’s business — pipelines, power transmission, and natural gas terminals — are like toll roads. Once built, there’s very little need for a competitor. This means Enbridge essentially operates hundreds of mini-monopolies — an advantage that won’t go away quickly.

Better yet, Enbridge is paid based on the volume of energy flowing through its network. Not the price. Only 5% of the company’s earnings are exposed to commodity prices, foreign exchange risk, or interest rate volatility. So when the next recession hits (yes, it will come eventually), the impact on profits will be minimal.

Given all this, is it any question as to how Enbridge has been able to pay an uninterpreted dividend for 60 years? Think of everything that has happened since that time. Yet for this company, it hardly mattered.

For over half a century Enbridge has continued to mail out the dividend cheques to shareholders. Because of the company’s proven ability to hold up in good times and bad, it means we can count on this stock to crank out those distributions for decades more to come.

Of course, nothing is guaranteed. But history shows that it’s companies like Enbridge…firms that dominate their respective industries and boast a sustainable competitive advantage…that survive over the long run. Exactly the type of stocks that best serve as a foundation for any income portfolio.

Earn a 11.5% yield from this pipeline company
One of the biggest complaints I hear from income investors about Enbridge is its payout. With a measly 3.2% yield, the distribution will hardly blow your socks off. But that would be short-sighted.

Enbridge is an example of what decades of small distribution hikes can do for a stock’s yield. Over the past ten years, Enbridge has increased its dividend at a 11.6% clip. If you had bought and held the stock over that time, the yield on your original investment would be 11.5% today.

To see what I’m talking about, take a look at the chart below. This example assumes you purchased Enbridge at around $11 per share near the beginning of 2003.

Year

Dividend per Share

Yield on Cost

2013

$1.26

11.45%

2012

$1.13

10.27%

2011

$0.98

8.91%

2010

$0.85

7.73%

2009

$0.74

6.73%

2008

$0.66

6.00%

2007

$0.62

5.64%

2006

$0.58

5.34%

2005

$0.52

4.73%

2004

$0.46

4.18%

2003

$0.42

3.82%

Source: Company filings

Let’s continue this hypothetical investment for another decade. Assuming Enbridge continues to raise its dividend by 10% pace, by 2023 the yield on our original stake will have grown to 30%. Clearly, skipping over this stock because of its mediocre yield today would be a mistake.

Foolish bottom line
The financial crisis taught us all a lot about investing. Building an income portfolio requires more than identifying companies with the highest yield. It’s about finding wonderful businesses that can sustain and grow these dividend payments over the long haul. Clearly, Enbridge just might have the right stuff.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Disclosure: Robert Baillieul has no positions in any of the stocks mentioned in this article.

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