Investing in top-quality dividend stocks with high yields can help in earning reliable passive income. Moreover, it can reduce your investment’s payback period. Fortunately, the Canadian stock market has several such fundamentally strong companies with a proven history of consistent dividend payments and high, dependable yields.
Against this backdrop, here is a top Canadian stock offering a 7.5% dividend yield that I’m buying and holding for decades.
The 7.5% dividend yield stock
Investors planning to invest in high-yield stocks with well-protected payouts could consider leading Canadian energy stocks. Notably, Canadian energy companies are famous for their robust dividend payments, making them solid investment options for passive-income investors.
Enbridge (TSX:ENB) stands out in the Canadian energy sector for its high yield, resiliency of its dividend payments, and management’s commitment to returning higher cash to its shareholders. Currently, Enbridge offers a quarterly dividend of $0.915 per share, which translates to an attractive yield of 7.5%, based on its closing price of $48.95 as of July 4.
It’s worth noting that Enbridge has a remarkable history of paying and increasing dividends, irrespective of market conditions. The company has uninterruptedly paid a dividend for over 69 years and has raised it for 29 consecutive years. Enbridge’s dividend has grown at a compound annual growth rate (CAGR) of 10% during that period. Its solid dividend payment history shows the resiliency of its payouts.
Adding to these positives, Enbridge’s future earnings per share (EPS) and distributable cash flows (DCF), which drive its payouts, are projected to grow. This implies that the company could continue to increase its dividend in line with its EPS and DCF per share.
With this backdrop, let’s examine the factors suggesting that Enbridge’s high yield is sustainable in the long term.
Enbridge’s dividend payouts are sustainable
Enbridge is a leading player in North America’s energy transportation sector, boasting a high-quality portfolio of energy infrastructure assets. As it plays a significant role in the oil and gas supply chain, its assets witness a high utilization rate, which is a catalyst behind its growing earnings base.
Further, the durability of its payouts stems from the energy company’s highly diversified revenue stream. Notably, its diversified portfolio enables it to reduce commodity and price risks and adds a layer of stability to its cash flows. Furthermore, Enbridge earns a substantial portion of its revenues from power-purchase agreements and long-term contracts. These arrangements help it to generate predictable income and effectively navigate volume and price risks.
Looking ahead, Enbridge continues to invest in conventional and renewable energy assets. These expand its earnings base and position it well to capitalize on future energy demand. Additionally, Enbridge’s solid balance sheet enables it to focus on growth opportunities, including strategic acquisitions. These acquisitions enhance its cash flows, solidify its competitive positioning, and support dividend payments.
Bottom line
Enbridge’s payouts are well-covered thanks to high asset utilization, well-diversified revenue streams, predictable earnings, and multi-billion-dollar secured capital projects. These catalysts collectively provide a solid foundation for future growth. Moreover, Enbridge’s management’s commitment to dividend growth implies it will continue increasing dividends in the coming years.
As management projects mid-single-digit growth in its EPS and DCF per share over the long term, Enbridge is poised to sustain dividend growth. Further, its payout ratio of 60-70% of DCF is sustainable. All these elements make Enbridge a dependable, high-yield, income-generating stock.
