Enbridge (TSX: ENB) is perhaps one of Canada’s best-known dividend stocks. It has a high-quality network of energy infrastructure assets that span across North America.
In a low interest rate environment, it has been able to shoot out a growing stream of dividend income. However, to finance its portfolio (and dividend) growth, it has issued a considerable amount of debt and equity to the market.
Be cautious of Enbridge’s outsized dividend yield
Now, with interest rates considerably higher than a year ago, many investors are starting to worry about Enbridge’s balance sheet. Today, this stock yields 8.2%.
However, there is some concern that its ability to pay its current dividend may be at risk, as elevated interest expenses eat away its earnings. Likewise, a recent major utility acquisition is questionably accretive, which makes one worried about its capital-allocation discipline.
Given this dynamic, Enbridge is not a stock I would want to hold in this rate and economic environment. Here are three dividend stocks I’d rather hold in 2023.
Fortis: Get dividends and sleep well at night
You don’t get as large a dividend yield when you buy Fortis (TSX: FTS) stock. It only yields 4.4%. However, with a 50-year history of consecutive dividend increases, it is one of Canada’s top Dividend Aristocrats. The company is going to be very hard-pressed to stop that record.
Unlike Enbridge, Fortis has very little commodity and competition risk. In its geographic regions, it operates an essential monopoly. Customers don’t get to choose who transmits or distributes their power or natural gas. 100% regulated operations mean stable and predictable cash flows.
The company has a very strong balance sheet with long-dated debt. It has a modest, sub-80% earnings payout ratio. This means its dividend is safe. Likewise, it has the capacity to keep growing earnings per share and dividend by 4-6% annually from here.
Pembina Pipeline: Assets like Enbridge but lower debt and safer dividend
If you are looking for a company in the same sector as Enbridge, Pembina Pipeline (TSX: PPL) may be a more interesting bet today. Pembina operates what it calls the “Pembina Store.” This includes natural gas collection and egress pipelines, natural gas processing plants, oil storage, and export terminals.
Pembina has about half the debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio as Enbridge, which means its balance sheet is significantly cleaner. With oil and gas prices rising, Pembina stands to see better flows through its network. Likewise, it gets a better price spread on the processed energy products it markets.
Today, Pembina yields 6.7%. Its payout ratio is below 75%, meaning its dividend is safe. Its strong balance sheet means it has the flexibility to invest in incremental growth and development opportunities without diluting shareholders.
AltaGas: An undervalued utility/infrastructure stock
AltaGas (TSX: ALA) is a mix between Fortis and Pembina. It has a midstream processing business in Western Canada, but it also operates natural gas utilities in four U.S. states. Unlike many other dividend stocks (like Enbridge), AltaGas is up 14% in 2023.
The company has traded at a considerable discount to both its utility and midstream peers. Yet the company has been working out a strong financial and operational turnaround over the past few years.
Today, it has an industry-leading growth profile in its regulated utility business. Likewise, its midstream business does well when energy prices and demand remain elevated.
While debt is a little elevated, it has been coming down. This stock yields 4.2%. It has been growing its dividend by 4-6% annually for the past three years.
