Enbridge (TSX:ENB)(NYSE:ENB) has been my favourite income stock for years. Over the long run, the company has also demonstrated an ability to generate high growth. Over the last 10 years, the stock has more than doubled in price, all while delivering a reliable 6.5% dividend.
While there are plenty of reasons to believe growth will continue, it’s hard to ignore Enbridge’s income-producing potential. With a fairly nominal investment, you could generate a passive-income stream of $3,250 every year. If you could use a few extra thousand dollars in 2020 and beyond, now’s your chance. The best part is that you can earn this annual income in addition to automatically saving for retirement.
These opportunities don’t present themselves often, but if you want the best of both worlds — income today and savings for tomorrow — Enbridge is the stock for you.
The math is simple
Generating passive income is simple math, just as long as you pick the right dividend stock. For example, with $50,000, you can receive $271 in dividends every month by owning Enbridge shares. That adds up to around $3,250 per year. That stream of income is only possible due to the company’s generous 6.5% dividend. Most TSX stocks, for comparison, pay 3% or less. Many pay nothing at all.
But what good is a monthly check if it’s disrupted along the way? This happens all too often. Dividend investors get enticed by a high yield, only to have that yield slashed months or years down the road. The great news about Enbridge is that it’s one of the most stable dividends I’ve come across. That’s because pipelines are basically monopolies.
Once a pipeline is built, there’s almost no competition. It can take a decade or more to design, permit, and construct a pipeline, meaning companies choose wisely when selecting a route. The best option is typically to avoid direct competition with another pipeline, especially since there are still plenty of regions left that lack sufficient capacity. That means that a single pipeline may be an oil and gas producer’s only chance at shipping their product to market, giving companies like Enbridge a locked-in customer base and impressive pricing power. Enbridge customers may literally have no other options.
Growth is a bonus
Through 2035 and beyond, Canada will continue to produce ever-growing volumes of crude oil and natural gas. That’s great news for pipeline operators considering they almost always charge based on volumes, not commodity prices. That’s a big advantage in the energy sector considering oil and gas producers require higher commodity prices to increase profits. Enbridge simply needs volumes to continue surging. All signs point to that happening for years to come.
In addition to the 6.5% dividend, I expect EPS to grow in the high single digits through 2030. Most analysts agree, with the average expectation for long-term profit growth hovering around 8.5% per year.
Already, Canada is strapped for pipeline capacity. Last year, the sector was roiled after volumes spiked unexpectedly and spare pipeline capacity was nowhere to be found. Enbridge now finds itself in an enviable position: customers who have essentially no bargaining power are begging it to build more pipelines. As the largest pipeline operator in North America, Enbridge has the scale, connections, and expertise to meet this demand.
That $50,000 is enough to generate $3,250 in annual income. Earnings increases will likely mean dividend increases. That means your annual payout has a high chance of growing every year. In a decade, you could be earning passive income of more than $6,000! That should give you enough cash flow to support your lifestyle and save for retirement. There’s simply no greater stock for both passive income and long-term growth.
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.
The Motley Fool owns shares of Enbridge. Fool contributor Ryan Vanzo has no position in any stocks mentioned. Enbridge is a recommendation of Stock Advisor Canada.