Canadians are searching for top companies to add to their RRSP portfolios.
Enbridge is buying Spectra Energy for $37 billion in a deal that will create North America’s largest energy infrastructure company.
With oil producers struggling and public opposition to major pipelines rising, it isn’t a surprise that Enbridge decided to go after Spectra, and investors are set to benefit as a result.
The two companies have about $26 billion in commercially secured small and medium projects under development. As those assets are completed and go into service, Enbridge expects cash flow to increase enough to support annual dividend growth of at least 10% through 2024.
Enbridge raised the dividend by 10% in January based on a cash flow outlook that doesn’t include Spectra. Once the deal closes, investors should see another increase.
Enbridge has raised its dividend in each of the past 21 years, so investors should feel confident in the company’s projections.
The new quarterly payment of $0.583 per share provides a yield of 4%.
Long-term investors have done well holding this stock. A $10,000 investment in Enbridge 20 years ago would be worth $313,000 today with the dividends reinvested.
Fortis owns natural gas-distribution, power-generation, and electricity-transmission assets in Canada, the United States, and the Caribbean.
This company has also been on an acquisition binge.
In 2014, Fortis spent US$4.5 billion to buy Arizona-based UNS Energy. The integration went so well that management decided to swing for the fence last year and purchased Michigan-based ITC holdings Corp., the largest independent transmission company in the United States.
The US$11.3 billion price tag for ITC initially scared investors when it was announced, but the market has become more comfortable with the deal, which closed in late 2016.
Fortis has raised its dividend every year for more than four decades, and management plans to hike the payout by at least 6% per year through 2021.
The current quarterly distribution provides a yield of 3.9%.
What about returns?
A $10,000 investment in Fortis 20 years ago would be now be worth $179,000 with the dividends reinvested.
Is one more attractive?
Both companies have proven to be solid buy-and-hold picks.
At this point, Enbridge probably offers better dividend-growth prospects over the medium term, so I would go with the pipeline giant as the first pick today.
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Fool contributor Andrew Walker has no position in any stocks mentioned. The Motley Fool owns shares of Spectra Energy. Spectra Energy is a recommendation of Stock Advisor Canada.