$25,000 in This Dividend Stock Pays You $1,920 a Year

Enbridge stock offers you a dividend yield of 7.7%, making it a top choice for income-seeking investors in 2023.

| More on:

Investing in dividend growth stocks is a low-cost way to create a sustainable passive-income stream. You need to identify companies that pay shareholders a tasty dividend yield while continuing to expand their cash flows, resulting in consistent dividend hikes each year.

One TSX dividend stock that has raised dividends for 28 consecutive years is Enbridge (TSX:ENB). The energy infrastructure giant has increased dividends by 10% annually since 1995, which is exceptional for a company part of a cyclical sector.

Enbridge currently pays shareholders an annual dividend of $3.55 per share, translating to a forward yield of almost 7.7%. It means a $25,000 investment in Enbridge stock will help you buy 541 shares of the company and generate $1,920 in annual dividends.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge$46.22541$0.8875$480Quarterly

Let’s see if this high dividend yield is sustainable.

Is Enbridge stock a good buy right now?

Enbridge is among the largest companies on the TSX and operates four core businesses, which include liquids pipelines, natural gas pipelines, gas utilities and storage, and renewable energy. It transports 30% of the crude oil produced in North America and 20% of the natural gas consumed south of the border. Moreover, Enbridge operates the third-largest natural gas utility in North America in terms of consumer count.

With a widening offshore wind portfolio, Enbridge is an early investor in renewable energy, a business that accounts for just 3% of its EBITDA (earnings before interest, tax, depreciation, and amortization).

Enbridge stock has trailed the broader markets in recent months as it disclosed plans to acquire three gas utilities from Dominion Energy for $14 billion. The deal is likely to be funded by debt, making shareholders nervous due to rising interest rates. But Enbridge emphasized it raised $8 billion in September and has enough liquidity to close the acquisition in 2024.

Once the acquisition is completed, Enbridge will be the largest natural gas utility platform in North America, delivering 9.3 bcf (billion cubic feet) of natural has each day to seven million customers. Enbridge has paid 1.3 times the estimated 2024 rate base and 16.5 times 2023 earnings to acquire the utility assets, which is not too expensive. Moreover, Enbridge believes the deal will enhance the stability of its cash flows and add incremental regulated earnings.

Enbridge has stable cash flows

A key reason for Enbridge’s enviable dividend growth is its stable cash flow profile. Around 98% of its earnings are generated from cost-of-service or take-or-pay contracted assets. Around 95% of its customer base is investment grade, and 80% of its EBITDA is derived from assets with built-in inflation protection.

Enbridge is also prudently managing its forward interest rate exposure via multiple risk mitigation strategies, as just 10% of its debt portfolio is exposed to floating rates through 2024.

With a payout ratio of less than 70%, Enbridge has enough room to reinvest in growth projects, lower balance sheet debt, and raise dividends further.

Priced at 16 times forward earnings, ENB stock also trades at a discount of 15% to consensus price target estimates. After accounting for its high dividend yield, total returns may be closer to 23% in the next 12 months.

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 Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

money goes up and down in balance
Dividend Stocks

This 6% Dividend Stock Is My Top Pick for Immediate Income

This Canadian stock has resilient business model, solid dividend payment and growth history, and a well-protected yield of over 6%.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »