Economists and strategists expected the Bank of Canada to pause its rate hike this month. However, the central bank could still increase its benchmark rate beyond 5% if underlying inflationary pressures persist.
Escalating inflation rate heightens investors’ anxiety, but it doesn’t mean there’s no way to lessen its impact. If you seek safety or want greater certainty, invest in dividend-paying companies that can grow dividend payments faster than inflation.
Enbridge (TSX:ENB) and BCE (TSX:BCE) are safe dividend stocks in today’s inflationary environment. Besides their attractive dividend yields, the industry giants are dividend aristocrats. The energy stock has raised dividends for 27 consecutive years, while the 5G stock’s dividend-growth streak is 14 years.
Long-term dividend-growth profile
Enbridge trades at $45.31 per share (-9.87% year to date) and pays a juicy 7.37% dividend. The $91.65 billion energy infrastructure company can support dividend growth and sustain generous payouts because of its low-risk commercial model and four core franchises.
Business segments such as gas transmission and midstream, gas distribution, liquids pipeline, and renewables are all value drivers. Besides the cost-of-service/contracted cash flows (98%), around 80% of Enbridge’s EBITDA has inflation protections.
The premier pipeline operator recently signed definitive agreements to acquire three gas utility firms of Dominion Energy in the United States. The US$14 billion deal will expand, if not double, Enbridge’s gas distribution and storage business.
More importantly, the Canadian firm will have a significant presence in America’s utility sector when it obtains regulatory approval for the transaction. Collectively, East Ohio Gas, Questar Gas, and the Public Service Company of North Carolina provide natural gas to around three million households and businesses.
Management believes the acquisitions align with Enbridge’s investment strategy to focus on low-risk industries with predictable cash flows. It will also establish a commanding natural gas utility platform (by volume) in North America. Enbridge anticipates a compound annual growth rate (CAGR) of approximately 8% on the consolidated rate base.
Enbridge’s president and chief executive officer (CEO) Greg Ebel said, “Adding natural gas utilities of this scale and quality, at a historically attractive multiple, is a once-in-a-generation opportunity. These acquisitions further diversify our business, enhance the stable cash flow profile of our assets and strengthen our long-term dividend growth profile.”
Cash cow
Dividend Aristocrat BCE has been paying dividends for more than 100 years. If you invest today, the telco stock trades at a slight discount (-3.81% year to date). At $55.42 per share, you can partake in the 6.91% dividend yield. A $15,050 position will produce $259.99 in passive income every quarter.
In the second quarter (Q2) of 2023, the net earnings of this $50.55 billion cash cow declined 39.3% to $397 million versus Q2 2022. A bright side is the continuing operating momentum of the wireless business, as evidenced by the more than 10 million mobile phone subscribers. The wireless service revenue grew 4.4% year over year due to the record Q2 postpaid net activations (111,282) in 18 years.
Mirko Bibic, president and CEO of BCE and Bell Canada, said BCE achieved the quarterly results against the backdrop of declining prices and persistent inflation.
Proven strategy
Dividend investing is a proven strategy to beat inflation. Enbridge or BCE are not exempt from market headwinds. However, their dividend payments should be rock steady come hell or high water.
