Dividend stocks enable you to earn regular cash. In addition, dividend-paying companies mostly have stable businesses and a growing earnings base, which supports higher payouts. Thanks to their solid earnings generation capabilities, these stocks add stability to your portfolio and deliver decent capital gains over time.
While the TSX has several fundamentally strong companies that have been paying and growing their payouts for years, I’ll restrict myself to Enbridge (TSX:ENB) and Fortis (TSX:FTS). Both companies are Dividend Aristocrats and have paid and raised their dividends in all market conditions for decades. Let’s look at factors that make Enbridge and Fortis top dividend stocks to buy and hold forever.
Enbridge – a dependable income stock
With a dividend growth history of over 28 years (reflecting an average annualized dividend growth rate of 10%), Enbridge is a no-brainer stock to earn stable income regardless of market conditions. It transports oil and gas and owns high-quality conventional and renewable energy assets. Also, as North America’s largest gas utility, it operates a regulated natural gas utility business.
Overall, the energy delivery comoany’s diversified portfolio, high utilization of its assets, and long-term contracts drive its DCF (distributable cash flow) and higher payouts. In addition, the regulated cost-of-service tolling frameworks, low-risk commercial arrangements, and power-purchase agreements bode well for growth.
The company’s stellar track record of dividend payments shows the resiliency of its DCF and its ability to grow its dividend. Moreover, it is poised to deliver higher cash flows and enhance its shareholders’ value through increased dividend payments in the coming years.
Besides the strength in its base business, investments in conventional and low-carbon energy assets position it well to capitalize on the future energy demand. Also, its ability to generate solid cash to self-fund its future growth opportunities is encouraging. The company will also gain from the commission of new projects, investments in low capital intensity and regulated utility projects, and accretive acquisitions.
Enbridge stock currently pays a quarterly dividend of $0.887 per share. This reflects an attractive dividend yield of about 7.2% (based on its closing price of $48.97 on August 9).
Fortis – a must-have income stock
With 49 years of consecutive dividend increases, Fortis is a must-have dividend stock to buy and hold forever. It operates a low-risk regulated electric utility business. Thanks to its regulated asset base, the company generates predictable and growing cash flows that drive its dividend payments. Further, about 99% of its earnings come from utility businesses, implying that its payouts are very well covered.
Looking ahead, the company’s $22.3 billion capital projects will help expand its rate base and drive its future earnings and dividend payments. Moreover, energy transition opportunities augur well for growth.
Fortis expects its rate base to expand to $46.1 billion by 2027 from $34.1 billion in 2022. This reflects an annualized growth rate of about 6.2%. Thanks to the expected increase in its rate base, the company plans to increase its dividend by 4-6% annually through 2027.
Investing in Fortis stock can help you earn a worry-free dividend yield of 4.1%. Moreover, visibility over its future payouts supports my bull case.