Better Buy for Dividends? Royal Bank Stock or Enbridge Stock?

These two dividend stocks have a long history of dividend increases, but one looks far safer than the other on the TSX today.

| More on:
grow dividends

Image source: Getty Images

Canadian investors remain focused on dividend stocks these days. And it’s clear why. Even though the stock market has been recovering, with November showing a huge rally, Canadians have been burned before. This is why being paid to own a stock sounds pretty great.

But how safe are those dividends? Let’s look at two of the best in the business, Royal Bank of Canada (TSX:RY) and Enbridge (TSX:ENB), to see which is the better dividend stock on the TSX today.

RBC stock

First, let’s look at RBC stock. The bank is the biggest of the Canadian Big Six banks by market capitalization, currently at $169.29 billion, as of writing. It offers a dividend yield of 4.55% as well, which is higher than its five-year average of 3.9% by quite a lot.

The dividend-payout ratio is also quite healthy at just 50.92%. That’s not so low that the company isn’t focused on providing cash for its dividend growth. It’s also, however, not too high. That would mean the company is putting too much cash into the dividend and not focusing on growth or paying down debt. This could mean RBC stock was about to slash the dividend, which doesn’t seem to be the case at all.

That’s likely thanks to being a Canadian bank in the first place. RBC stock is the biggest of the banks that take up 90% of the banking sector in Canada. This oligopoly means these banks are quite safe to invest in. We’ve witnessed this for hundreds of years, with the only banking crisis happening in 1837. Since then, it’s ridden through depressions, recessions, and, ah, yes, a pandemic.

RBC stock is looking quite healthy. It continues to seek expansion through acquisitions and partnerships. It has a lucrative wealth and commercial management business as well. And as the market recovers, it could be that we see this Dividend Aristocrat raise the dividend once more.

Enbridge stock

So, what about Enbridge stock? The pipeline company recently made headlines for increasing its dividend by 3%. But was that a smart move? The $100 billion company now has a dividend yield of 7.8% as of writing, with share prices actually lower than where they were even five years ago!

The company’s 7.8% dividend yield is certainly higher than its five-year average at the moment of 6.66% as well. However, here is the glaring, huge, massive issue with Enbridge stock. This company currently has a payout ratio of a whopping 234.83%! That means it is using practically everything it has to throw cash as its dividend without saving money for expansion.

And expansion is what the company must do if it hopes to survive. After all, the world is shifting away from pipeline companies. Enbridge stock needs to be able to adapt to the future of renewable energy. It’s already trying, but it’s going to take a massive investment. And that’s something Enbridge stock may not be able to afford.

At least, it can’t afford it if it hopes to keep paying the high dividend that investors know and love. Moreover, the company continues to focus on increasing that dividend by 7% to 8% each year, making it even more risky. Therefore, in my view, RBC stock certainly looks like the better dividend stock on the TSX today.

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 Amy Legate-Wolfe has positions in Royal Bank Of Canada. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »

Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Some of these dividend stocks will take longer to recover than others, but they'll certainly pay you to stick around.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: How Much to Invest to Earn $250/Month

Want to earn $250/month of tax-free passive income? Here are four Canadian dividend stocks to look at buying in your…

Read more »