Telus vs Enbridge: Which High Yield Dividend Stock Is Better?

Enbridge (TSX:ENB) and Telus (TSX:T) both have high yields. Which is better?

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Telus (TSX:T) and Enbridge (TSX:ENB) are two of Canada’s most popular dividend stocks. Telus is a telecommunications company with a 6.16% dividend yield, while Enbridge is a pipeline with a 7.4% yield. Both stocks have a lot of income potential, but which one is a better buy at today’s prices?

Recent earnings

In its most recent earnings release, Telus delivered:

  • $4.9 billion in revenue, up 15.6%.
  • $246 million in net income, down 45%.
  • $0.27 in adjusted EPS, down 10%.
  • $535 million in free cash flow, up 29%.

Overall, not a bad showing. Earnings went down, but free cash flow went up, so ultimately the company’s dividend-paying ability improved.

Now let’s look at Enbridge’s most recent quarter:

  • $12 billion in revenue, down 20%.
  • $1.8 billion in net income, down 10.4%.
  • $0.85 in diluted EPS, down 10.5%.
  • $3.2 billion in distributable cash flow, up 3.5%.

Between these two, Telus grew faster last quarter, while the profit margin was similar. I’ll give this factor to Telus.

Dividend growth

Both Enbridge and Telus have long dividend growth track records behind them. However, Enbridge’s is slightly better. Enbridge has hiked its dividend every year for the last eight years. It has grown its dividend by a 27% CAGR over 10 years. Telus’ 10-year CAGR dividend growth is only 11% and its dividend growth streak is only two years. So, Enbridge wins on dividend growth.

Long-term earnings growth

Next up, we have long-term earnings growth.

Over the last five years, Enbridge has grown its key income statement metrics by the following compounded annual growth rates:

  • Revenue: 1.8%.
  • EBITDA: 4.7%.
  • EBIT: 4.3%.
  • EPS: -3.8%.

Telus, on the other hand, has grown at the following CAGR rates:

  • Revenue: 7%.
  • EBITDA: 1.7%.
  • EBIT: 1.4%.
  • EPS: -4.9%.

Overall, the long-term growth at both companies has been fairly lousy. Telus is growing its revenue faster, but on the other hand, Enbridge’s earnings are shrinking more slowly. I’ll call this round a draw.

Dividend sustainability

A final factor we need to look at is Enbridge and Telus’ dividend sustainability. That is, the percentage of their earnings that they are paying out as dividends. When a company pays out more than 100% of its earnings as a dividend, that tends to indicate that its dividend will be cut.

On this factor, Telus scores much better than Enbridge does. Enbridge currently pays out 123% of its earnings and 66% of its operating cash flows as dividends. Telus, on the other hand, pays out 121% of its earnings and 44% of its operating cash flows as dividends. In both cases, these companies’ earnings-based payout ratios are too high, while the cash flow-based payout ratios aren’t bad. But the ratios are both lower in Telus’ case, giving that stock the nod in the dividend sustainability category.

And the winner is…

Taking everything into account, I’d favour Telus stock over Enbridge stock as a dividend investment right now. Enbridge’s historical growth is better but, on the other hand, Telus’ most recent quarter indicated a turnaround, with high growth in free cash flow, while Enbridge’s most recent quarter was fairly weak. So while ENB’s past is better than T’s is, the latter looks like it has a better future.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and TELUS. The Motley Fool has a disclosure policy.

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