Dividend stocks are set to dominate the TSX in 2024, as the market reverses its course and makes borrowing less expensive. If you notice, 2023 was bearish for companies with high debt on their balance sheet. The stock price of several Dividend Kings like BCE, Enbridge (TSX:ENB), and TC Energy fell, owing to rising interest expenses on their debt. Enbridge stock slumped 22% in the first 10 months and reversed its course in the last two months as winter increased natural gas consumption.
This 7% dividend stock is set to dominate the TSX
A slump in Enbridge’s stock price inflated its dividend yield above 7% throughout the year. The pipeline operator has been building gas pipelines to tap the opportunity of exporting liquified natural gas (LNG) to Europe. And it will reap the benefits of the same in 2024 and beyond.
In November, Enbridge’s 2024 guidance expects operating profit to grow to $16.9 billion, driven by better system utilization of oil pipelines, gas pipeline extension and renewable energy projects coming online. Based on its 2023 distributable cash flows, the company also increased its dividend per share by 3% to $3.66.
You can lock in a 7.4% dividend yield if you buy Enbridge stock today. The yield is the dividend amount as a percentage of the stock price. Enbridge’s average annual yield is 6.7%. A 0.7% higher yield can convert into a higher dividend amount in the long term.
What do you gain by buying this dividend stock today?
The simple rule of any stock is to buy the dip and sell the rally. And when it comes to a stock that grows its dividend annually, buying the dip can help you get a higher payout.
If you invest $7,000 in Enbridge stock when the dividend yield is 6.7%, you get $469 in dividends. But if you invest the same amount when the yield is 7.4%, you can get $518 in dividend payout, which is $49 extra. How did that happen? The yield increased because the stock price fell. When you buy at a lower price, you could buy more income-generating shares for the same amount. More shares mean more income.
Let’s see how the $49 excess dividend compounds when the dividend grows at a 3% rate.
| Dividend income at 6.7% Yield | Dividend income at 7.4% Yield | Difference in dividend income |
| $469.00 | $518.00 | $49.00 |
| $483.07 | $533.54 | $50.47 |
| $497.56 | $549.55 | $51.98 |
| $512.49 | $566.03 | $53.54 |
| $527.86 | $583.01 | $55.15 |
| $543.70 | $600.50 | $56.80 |
| $560.01 | $618.52 | $58.51 |
| $576.81 | $637.07 | $60.26 |
| $594.12 | $656.19 | $62.07 |
| $611.94 | $675.87 | $63.93 |
| $5,376.56 | $5,938.29 | $561.73 |
In the second year, the $518 payout will grow to $533.5, growing at 3%. In the 10th year, you could get an annual dividend payout of $675.9, $63.9 more had you locked in the average 6.7% yield. If you sum up all 10 years of dividends, you earn almost $562 additional dividend income just because you bought the dip.
Enbridge stock trades in the range of $42-$58. Buying the stock closer to its lower range reduces your downside risk. Suppose you invest $7,000 and get 141 Enbridge shares at $49.6. Your $7,000 investment might hover in the $5,900-$8,100 range, a 16% downside and upside.
Possibility of an increase in Enbridge’s share price
Enbridge has a low-risk predictive model. The company grows its cash flows by increasing the toll money, building new pipelines, and extending or maintaining existing ones. Last year, it announced the acquisition of three gas utilities of Dominion Energy in America. Once completed, this acquisition will make Enbridge the largest gas utility provider in North America. Utility stocks are also good dividend payers as they enjoy stable cash flow.
While it will increase Enbridge’s balance sheet debt, it will be accretive to its distributable cash flow and increase the pipeline operator’s enterprise value. The acquisition of this magnitude could push Enbridge’s stock price upwards.
This stock is set to dominate the gas utility business in 2024.
