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Most income-focused investors prefer reliable, steady cash inflow over growth. Investing for income means you’d be purchasing dividend stocks not growth stocks and the timeframe is long. More importantly, the objective is to build wealth gradually, create a substantial nest egg, and live comfortably in retirement by earning lifetime income like pensions.
However, a critical component of this strategy is the choice of investment or core holding. Stock prices rise and fall constantly, so the anchor stock should pass basic requirements. It must have financial strength and stability to weather this market behaviour and sustain dividend payments for decades, if not forever.
Top-of-mind choice
A top-of-mind choice is Enbridge (TSX:ENB) in the energy sector. The $115.9 billion energy infrastructure company and premier pipeline operator is TSX’s third-largest company by market capitalization. At $53.21 per share, the dividend yield is 6.9%.
As of August 8, 2024, ENB is up 15.9% year-to-date and outperforms the sector (+14.6%) and the broad market (+6.1%). The best part is that quarterly payouts increase yearly. The energy heavyweight is a “dividend aristocrat” owing to 29 consecutive years of dividend hikes. Its most recent increase was 3.1%.
Suppose a retiree has accumulated 5,000 shares over time. The retiree can expect to receive $18,410.66 in dividends annually or $4,602.67 quarterly. Note that the passive income is higher than the average Canada Pension Plan (CPP) and maximum Old Age Security (OAS) pensions of $9,789.24 (April 2024) and $8,250.72 in a year combined.
Pros and cons
Some market analysts worry about Enbridge’s high debt levels and capital-intensive business. Others say profits could be hit by pipeline accidents like leaks, sending the stock crashing. Still, the dividends are relatively safe, and the positives outweigh the negatives.
Enbridge’s four core franchises are growth drivers. Its liquids pipeline segment, North America’s largest system, transports 30% of crude oil produced in the region. The gas transmission and midstream unit delivers 20% of total natural gas consumption.
Enbridge now boasts the largest utility assets in North America with recently acquired gas utility firms in the United States. Renewable power investment is growing and should soon be able to deliver more clean energy.
In addition to the scale and diversified portfolio, Enbridge maintains a low-risk commercial and financial profile. Moreover, cash flows are predictable because cost-of-service or contracted assets account for around 98% of EBITDA. The utility-like business model and stable, diversified cash flows temper the debt leverage concerns.
Business performance
In the first half of 2024, adjusted EBITDA, adjusted earnings, and distributable cash flow increased 9.6%, 3.1%, and 6.5% year-over-year respectively to $9.3 billion, $3.2 billion, and $6.3 billion. The Q2 2024 earnings attributable to common shareholders were flat at $1.9 billion.
Greg Ebel, President and CEO, said about the most recent financial results, “The scale and connectivity of our business is extending growth opportunities across our four business franchises.”
Enbridge raised its full-year 2024 financial outlook following the completed U.S. gas utilities transactions. The adjusted EBITDA guidance increased from $17.7 billion to $18.3 billion.
Buy-and-hold forever
Enbridge has the qualities of a buy-and-hold forever passive income provider. The energy giant has financial stability, multiple growth drivers and, most of all, dividend consistency.
