For many investors, the main goal of investing is to create a portfolio that can provide reliable income and long-term capital appreciation to take them comfortably into the retirement years and to sustain them through the good times and the bad times.
Today, building this strong dividend portfolio is easier than ever. With investment accounts such as the TFSA to shelter income and capital gains from taxes, as well as many high-quality dividend stocks to choose from, investors have only one problem — deciding which dividend stocks to choose. It’s a good problem to have but, nevertheless, one we must solve.
In this article, I will talk about two dividend stocks that are high-quality dividend income generators. Which one should you choose for your TFSA today?
With the world’s longest crude oil and liquids transportation system, delivering approximately 25% of North America’s crude oil and approximately 20% of North America’s natural gas, Enbridge (TSX:ENB)(NYSE:ENB) remains a leading energy infrastructure giant that has provided shareholders with 22 years of dividend increases.
The last four years have seen particularly strong dividend increases, with a 33% raise in 2015, a 14% raise in 2016, a 15% raise in 2017, and a 10% raise in 2018, and with dividend growth of 10% expected through to 2020 and 5-7% thereafter, we can rely on visible growth going forward with this name.
Enbridge’s $9 billion Line 3 replacement project, which runs from Alberta to Wisconsin and will restore Line 3’s capacity to 760,000 barrels per day (adding 375,000 bpd), is the largest project in Enbridge’s history. It will have the newest and most advanced pipeline technology and will help transport more oil out of Alberta into the U.S., significantly easing the infrastructure issues in Canada.
Construction on the Canadian portion of Line 3 is complete, but the U.S. portion is still facing regulatory setbacks. The latest setback was a recent decision by the Minnesota court, which ruled that Enbridge’s environmental impact statement was inadequate. This latest setback has pushed the in-service date further out to the second half of 2020.
Not surprisingly, Enbridge stock has been hit hard (down 19% since January 2017). But Enbridge remains a key infrastructure player, with solid financials, a solid history, as well as numerous growth projects in its future, making it a solid buy today at attractive prices. And while you wait for the upside in the stock, you have a generous 6.31% dividend yield. This is a pretty good deal.
Another dividend stock that operates in the energy infrastructure business and is worth considering today is Inter Pipeline (TSX:IPL). Inter Pipeline has a strong history of dividend growth and stability, with 14 years of dividend increases and a five-year CAGR in dividends of 9%. With a dividend yield of 8.4% today, this is a company that is also going through some short-term, temporary pains, providing investors with an excellent opportunity to pick up some extra yield at an attractive price.
But these temporary issues, which mostly relate to the company’s investment into its $3.5 billion Heartland Petrochemical Complex, will also likely prove to be transitory in nature. And in time, the company will benefit greatly from this project, as when it is completed in late 2021, management expects it to contribute approximately $450-500 million in EBITDA annually. This compares to 2018 EBITDA of $1.25 billion.
The value of the company’s premium assets as well as its growth opportunities such as Heartland will surface. For those investors that add Inter Pipeline stock to their TFSA, you will get a very generous and safe dividend and long-term upside potential.
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Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.