Dividend Aristocrats are choice picks for Canadian investors seeking stability and a modest degree of inflation-resistance in their dividend income. However, there is a lot of variety among the Aristocrats as well. Some are better for their growth prospects, while others offer a healthy combination of yield and capital preservation (if not appreciation).
The attractiveness of these Aristocrats is tied to market dynamics as well. The stocks might slump during bear markets and start offering generously high yields. When the market goes up, they may augment dividend-based returns with capital appreciation (if you buy at the right time).
Then, there are strengths relevant to any given market and evergreen factors to consider when evaluating an Aristocrat like Enbridge (TSX:ENB). There are at least three reasons to buy this stock in any given market, including the current one.
The business model
Midstream energy businesses that focus on energy-related infrastructure tend to be safer than downstream and upstream businesses because those two types are vulnerable to energy price fluctuations.
Midstream businesses like Enbridge, one of the largest energy pipeline companies in the world, rely upon long-term contracts for revenue generation. This makes their revenues and, consequently, the dividends more reliable and stable.
But Enbridge isn’t just a pipeline company. A sizable amount of its business is utility (natural gas), and it has a massive consumer base in Canada and the U.S., with roughly six million customers.
So, the bulk of its revenues are from sources that are partially or fully sheltered against sector or even market headwinds, as utilities (as necessary expenses) are virtually immune to weak economic conditions.
Dividend history
If we stick to the Canadian definition of Dividend Aristocrats — i.e., companies that have grown their payouts for five or more years — there are dozens of aristocrats trading on the TSX.
But let’s go by the more stringent but more prevalent definition — i.e., companies that raise their dividends for at least 25 consecutive years. There are barely a dozen Dividend Aristocrats in Canada — Enbridge is one of them.
The company has raised payouts for 29 consecutive years, including two major market crashes, the Great Recession, the pandemic, and multiple sector-specific negative phases. This is the history of a resilient and reliable dividend payer.
Sustainable dividend growth
The company has adopted a conservative dividend-growth strategy focused on keeping payout ratios healthy. This reflects the company’s commitment to long-term dividend growth, hopefully for decades.
Foolish takeaway
In addition to these evergreen reasons to buy Enbridge for its dividends, a highly compelling reason to buy this energy stock now is its impressive 7% yield. The stock is also fairly valued right now, with a price-to-earnings ratio of 19.8.
