Before You Buy Enbridge: Here’s a Different Dividend Stock I’d Buy First

While Enbridge remains a top investment choice in 2024, this TSX dividend stock is positioned to outpace the Canadian energy giant.

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Enbridge (TSX:ENB) is among the most popular dividend stocks trading on the TSX. In the last 20 years, ENB stock has returned more than 850% after adjusting for dividends, compared to the TSX index returns of 373%.

While Enbridge is part of the cyclical energy sector, it has raised dividends by 10% annually on average in the last 29 years, enhancing the yield at cost significantly. Today, the TSX dividend stock pays shareholders an annual dividend of $3.66 per share, indicating a forward yield of 7.6%.

A key reason for Enbridge’s impressive dividend growth is its predictable and stable cash flows. The majority of Enbridge’s cash flows are tied to long-term contracts and indexed to inflation, shielding it from fluctuations in commodity prices. Moreover, its diversified and expanding base of cash-generating assets has allowed it to perform well across business cycles.

Is Enbridge a good stock to buy right now?

Enbridge’s vast network of pipelines offers it a wide competitive moat. In the upcoming decade, it also aims to gain traction in expanding markets such as clean energy.

Despite its massive size, Enbridge’s growth story is far from over. For instance, it recently inked a $19 billion deal to acquire three natural gas utilities from Dominion, which should drive future cash flows and dividends higher. However, Enbridge is unlikely to replicate its historical gains or dividend growth, given cash flows are forecast to increase by less than 5% annually in the next decade.

Enbridge is an ideal stock for those looking to generate a stable source of recurring passive income. However, there are other TSX stocks that are poised to outpace Enbridge in 2024 and beyond. One such stock is Secure Energy Services (TSX:SES), which offers you a forward yield of 3.5%, given its annual payout of $0.40 per share.

What is the target price for Secure Energy Services stock?

Valued at $2.78 billion by market cap, Secure Energy Services is a waste management and energy infrastructure company. In early 2024, it closed the sale of 29 facilities to Waste Connections for $1.15 billion, allowing Secure Energy Services to repay the entire amount drawn on a $800 million senior secured revolving credit facility.

It ended the first quarter (Q1) of 2024 with discretionary free cash flow of $93 million, or $0.33 per share, indicating a payout ratio of 30.3%, which is very reasonable. A low payout ratio allows Secure Energy Services to reinvest in organic growth, target acquisition, lower balance sheet debt, and raise dividends further. In the last nine years, Secure Energy has increased its dividend by almost 20% annually.

Secure Energy Services emphasized that growth capital expenditures are on track to increase from $50 million in 2023 to $75 million in 2024. With a solid pipeline of organic growth opportunities, Secure Energy Services continues to pursue growth strategies to expand its infrastructure network with new project announcements.

Priced at 6.3 times forward earnings, SES stock is really cheap and trades at a discount of 19.3% to consensus price target estimates. After touching multi-year lows amid the COVID-19 pandemic, SES stock has surged more than 600% in the last four years.

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 Enbridge. The Motley Fool has a disclosure policy.

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