Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend income today?

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

Fortis (TSX:FTS) and Enbridge (TSX:ENB) are two very popular dividend stocks in Canada. Both pay attractive dividend yields. However, they have different levels or risk and reward that investors need to factor in. If you are looking for a quality dividend stock but wondering which one to buy, here is a breakdown of each.

Fortis stock: A model of consistency

With a stock price of $54.60, Fortis has a market capitalization of $26 billion. It operates 10 regulated transmission and distribution utility businesses across Canada, the U.S., and the Caribbean. 99% of its revenues are from regulated operations, so it captures a predictable baseline of earnings.

Generally, Fortis business is pretty boring. However, consistency is key in the utility industry, and Fortis has delivered that.

Over the past 10 years, it has grown earnings per share (EPS) by a steady 5% compound annual growth rate. In 2022, it will likely grow earning per share by 6.5%. Its stock has basically mirrored its earnings-per-share growth with an average 4.8% compounded annual stock return for the decade.

If you consider dividends, it is hard to find a better stock. Fortis has grown its dividend consecutively for 49 years. Right now, its dividend-payout ratio sits at 78%, which indicates its sustainability.

Fortis has a $22.3 billion capital that it anticipates will grow its rate base by a compounded 6.2% annual rate to 2027. Given its anticipated growth, it continues to expect 4-6% annual dividend growth for the near future.

Enbridge: Bigger dividend but more volatile and higher risk

Enbridge is significantly larger and more diversified than Fortis stock. With a price of $54.28, it has a market cap of $109 billion. It operates some of the most significant oil and gas pipelines across North America. For context, 30% of the oil produced in North America is transported through Enbridge’s system.

It also has natural gas utilities, storage facilities, LNG export terminals, and renewable power projects. These diversified operations certainly help to spread out its risk. However, Enbridge’s business is commodity-centric, which means it tends to trade in lockstep with global energy sentiment. Its stock has historically been more volatile than Fortis stock.

Enbridge has grown earnings per share by a 6.1% compound annual growth rate over the past 10 years. However, its earnings have fluctuated more than Fortis’s along the way.

In 2022, it should grow earnings by about 7% to $2.94 per share. Its stock has underperformed its earnings-per-share growth. Enbridge stock has only delivered a 2.2% annualized stock return over the past 10 years.

Enbridge has a $9 billion capital plan. It hopes to accrete 5-7% annual cash flow growth over the next few years. Its dividend, however, is only expected to grow by the low single digits. Right now, it has an earnings-payout ratio of 117%, which suggests it is paying out more dividends than income it is earning.

Fortis stock or Enbridge? What’s a better buy?

Fortis stock earns a 4.13% dividend yield. Enbridge earns 6.5% dividend yield. While Enbridge has a more attractive dividend, investors do need to be a little bit cautious.

Over the years, it has issued debt to cover its earnings shortfall to pay its outsized dividend. While this has worked in a low interest rate environment, more expensive debt could restrict its ability to raise capital (and raise its dividend).

Fortis has been very prudent and disciplined about how it manages its cash flows and dividends. Given this, Fortis is likely the better pick for stable safe income. On the flip side, Enbridge might be the stock for a bigger dividend, but you have to accept a higher level of business and financial risk.

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.

Fool contributor Robin Brown has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

grow dividends
Dividend Stocks

3 Canadian Stocks With a Real Chance of Doubling Your TFSA’s Value

Three outperforming Canadian stocks can help TFSA investors double their account balances.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 No-Brainer Stocks I’d Buy Right Now Without Hesitation

At any given time, the market may have certain stocks that offer a powerful combination of reliability, potential, valuation, etc.,…

Read more »

money cash dividends
Dividend Stocks

This 8.39% Dividend Stock Can Pay $100 Cash Every Month

Consider investing in this monthly dividend stock at current levels to lock in high-yielding monthly distributions to create a good…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The Bank of Montreal (TSX:BMO) says that the average TFSA balance is $41,510, far below the maximum.

Read more »

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

Investors: Here’s How to Make $1,000 Each Month in Retirement

Here's how you can easily make $1,000 in monthly passive income in retirement in Canada, without taking on too much…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer TSX Stocks I’d Buy Right Now Without Hesitation

Three TSX stocks that continue to overcome massive headwinds and beat the market are no-brainer buys right now.

Read more »

calculate and analyze stock
Dividend Stocks

TFSA Investors: 2 Top TSX Dividend Stocks to Buy on a Dip and Hold Forever

These top TSX dividend stocks now offer attractive yields and big potential capital gains.

Read more »

grow money, wealth build
Dividend Stocks

1 Dividend Stock to Buy for Growth and Stay for a 5.5% Yield

This dividend stock has been rising higher, but more could certainly be on the way. Now is the time to…

Read more »