How Investing $100 Per Week Can Create $2,000 in Annual Dividend Income

Investing small sums of money can help you generate a substantial amount of dividend income over time. For instance, you can start earning dividends by purchasing a single share of a dividend-paying stock. It’s essential to build up your position in the stock, raising your exposure and dividend payout in the process.

Let’s say you invest $100 per week for a period of five years. It suggests you would invest a total of $26,000 in this period. The proceeds of your investment should be allocated to blue-chip TSX stocks such as Enbridge (TSX:ENB).

Today, Enbridge pays shareholders an annual dividend of $3.66 per share, translating to a yield of almost 8%. An investment of $26,000 in ENB stock will help you purchase 559 shares of the company, which would pay you $2,046 in dividends in the next 12 months.

Moreover, Enbridge is a dividend-growth stock and has increased its payouts by roughly 10% annually in the last 29 years. In case it grows dividends by a similar rate, your payout should double in the next seven years, enhancing the effective yield significantly.

For example, you could have purchased 2,005 shares of Enbridge for $26,000 back in 2004. In the next 12 months, you would have earned an annual dividend of $918, indicating a yield of 3.53%. Today, 2,005 shares would pay you $7,338.3 in annual dividends, increasing the yield to 28.2% in the last 20 years.

Additionally, investors would also see their portfolio value grow to $93,152 due to the appreciation of Enbridge’s stock price. While Enbridge has delivered market-beating returns for investors to date, let’s see if it remains a top dividend stock right now.

Is Enbridge stock undervalued?

Enbridge is a diversified energy infrastructure company and among the largest ones in North America. It aims to grow earnings by 5% annually in the medium term on the back of growth projects and accretive acquisitions.

It has several projects under construction, which include natural gas pipelines, natural gas utility expansions, and offshore wind farms. In late 2023, the company also announced its intention to acquire three natural gas utilities, improving the sustainability of its cash flow.

Its visible growth should offer Enbridge plenty of room to increase its already high dividend yield. If you add the yield to projected growth rates, we can see Enbridge’s yield-on-cost may surpass 10% in the next five years.

Priced at less than 17 times forward earnings, ENB stock is not too expensive and trades at a discount of 14% to consensus price target estimates. If we account for Enbridge’s high dividend yield, total returns will be closer to 22% in the next 12 months.

The Foolish takeaway

It’s evident that Enbridge is a cash-generating behemoth and owns a diversified base of assets. Moreover, the company’s investments in growth projects should drive dividends and cash flows higher in 2024 and beyond.

While ENB remains a quality dividend stock, you should identify other such companies that have the potential to increase dividends across market cycles, further diversifying your portfolio.