The Canadian equity market is upbeat this year, with the S&P/TSX Composite Index rising 4.7% amid solid quarterly performances and signs of easing inflation. However, analysts are projecting a global economic slowdown due to a prolonged high-interest-rate environment. Besides, the ongoing geopolitical tensions are a cause for concern.
Given the uncertain outlook, investors should look to add quality dividend stocks to strengthen their portfolios and earn a stable passive income. Also, dividend stocks have historically outperformed the broader equity markets. So, let’s assess Fortis (TSX:FTS) and Enbridge (TSX:ENB) to decide which would be a better buy right now.
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Fortis
Fortis is a Canadian utility company that serves around 3.5 million customers across North America, meeting their electric and natural gas needs. Its low-risk utility business and regulated assets make its financials less susceptible to market volatility. Supported by its stable and predictable cash flows, the company has raised its dividends for 50 consecutive years, making it one of the Canadian companies with longer dividend growth. Besides, its average total shareholder return for the last 20 years stands at 10.7%, outperforming the S&P/TSX Composite Index.
Meanwhile, Fortis has planned to invest around $25 billion from this year to 2028, expanding its rate base at an annualized rate of 6.3% to $49.4 billion by 2028. Of these investments, the company has dedicated 80% to smaller projects and the remaining 20% to major capital projects. Besides, the utility company has adopted a balanced approach to fund these investments. It expects to generate 55% of its investments from the cash generated from its operations, 11% from issuing additional shares, and 34% from debt. Driven by these growth initiatives, Fortis’s management expects to raise its dividend by 4 to 6% annually through 2028.
Given Fortis’s capital-intensive business, it has been under pressure over the last few months amid rising interest rates. Compared to its 52-week high, FTS stock has lost around 13.5% of its value. Amid the weakness, it trades at 16.7 times analysts’ projected earnings for the next four quarters and offers a forward dividend yield of 4.42%.
Enbridge
Enbridge is another top Canadian dividend stock to have in your portfolio, given its consistent dividend-paying record and high yield. The midstream energy company transports oil and natural gas across North America. With around 98% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) generated from long-term contracts, its financials are less susceptible to commodity price fluctuations.
With its stable cash flows, the company has paid dividends uninterruptedly for 69 years and has increased its dividends for 29 previous years at a CAGR (compound annual growth rate) of 10%. Besides, it offers a juicy forward yield of 7.50%.
Further, Enbridge recently acquired East Ohio Gas Company and is working on completing two other natural gas utility asset buys in the United States. After completing these acquisitions, Enbridge would become North America’s largest natural gas utility company, serving around seven million customers. The increased contribution from low-risk utility assets could further stabilize Enbridge’s financials.
The company is also expanding its asset base and expects to put an additional $8 billion of assets into service by the end of next year. Besides, the company has strengthened its financial position by lowering its debt-to-equity ratio to 4.1. So, given its healthy growth prospects and solid financial position, I believe Enbridge is well-positioned to maintain its dividend growth. Also, its valuation looks reasonable with an NTM (next 12 months) price-to-earnings multiple of 17.5%.
Investors’ takeaway
Fortis and Enbridge offer excellent buying opportunities, given their solid underlying businesses, solid track record of dividend growth, and healthy growth prospects. However, I am more bullish on Enbridge due to its high yield and expansion initiatives.
