Enbridge vs Telus: Which High-Yield Dividend Stock Is Better?

Let’s assess these two high-yielding stocks to pick the better buy in this volatile environment.

Rajiv Nanjapla

Rajiv Nanjapla has been with Motley Fool Canada since July 2020. He has over eight years of experience in analyzing financial statements and writing financial research reports. His area of interest includes cannabis, retail, technology, and energy. He also holds a post-graduate diploma in finance and operations.

Published August 12, 2024 3:45 pm EDT

Despite the recovery over the last two trading days, the S&P/TSX Composite Index is down 3.5% this month. Recession fears have made investors nervous, leading to a pullback. Given the uncertain environment, investors should look to buy high-yielding dividend stocks to earn a stable passive income while strengthening their portfolio.

Against this backdrop, let’s assess Enbridge (TSX:ENB) and Telus (TSX:T) to decide on a better dividend stock to have in your portfolio right now.

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Enbridge

Enbridge reported solid second-quarter performance earlier this month. The midstream energy company posted an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $4.3 billion, representing an 8% increase from the previous year’s quarter. Besides, its distributable cash flow for the quarter stood at $2.9 billion, representing a 3% increase compared to the prior year’s quarter.

During the quarter, it completed the acquisition of Questar Gas Company and Wexpro, and hopes to close the acquisition of Public Service Company of North Carolina in the third quarter. These acquisitions would diversify its business and enhance its cash flows, thus strengthening its long-term dividend growth prospects. Further, the company is progressing with its $24 billion secured capital program, spending $6 to $7 billion annually. These investments would strengthen its asset base, driving its cash flows.

Moreover, Enbridge has rewarded its shareholders by paying dividends for the last 69 years and has raised the same for the previous 29 years at an around 10% CAGR (compound annual growth rate). It currently offers a forward dividend yield of 6.9% and trades at an attractive NTM (next 12 months) price-to-earnings multiple of 17.7.

Telus

Amid unfavourable regulatory changes and rising interest rates, the telecom sector was under pressure over the last two years. However, the Bank of Canada has slashed its benchmark interest rates twice this year, and investors are hopeful of one more cut later this year. So, the decline in interest rates has improved investor sentiments, driving telecom companies’ stock prices. Amid the renewed interest in the sector, Telus’s stock price has increased by 12.2% compared to its July low. However, it is still around 35% lower than its 2022 highs.

In the recently reported second-quarter earnings, the company added a record 332,000 customers, 39,000 higher than last year’s quarter. Its expanded 5G and broadband infrastructure and bundled offerings have expanded its customer base. Besides, its churn rate in the postpaid mobile segment remained low at 0.9%. Amid these solid operating metrics, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 5.6% while generating $1.4 billion of cash from its operating activities. Also, its free cash flow stood at $478 million, a 71% increase from the previous year’s quarters amid higher EBITDA, lower capital expenditures, and lower income taxes.

Further, the demand for telecommunication services has been rising amid the digitization of businesses, thus creating multi-year growth potential for Telus. Besides, telecom companies enjoy healthy cash flows due to their recurring revenue streams, making their dividend payouts safer.

Moreover, Telus has an excellent record of rewarding shareholders. It has returned $26 billion to its shareholders since 2004, with $21 billion in dividends and $5.2 billion in share repurchases. With a monthly dividend of $0.3891/share, its forward yield is at a juicy 6.9%. Given its healthy growth prospects, the company’s management hopes to raise dividends at an annualized rate of 7 to 10% through 2025. All considered, T stock’s valuation looks reasonable, with its NTM price-to-sales multiple at 1.6.

Investors’ takeaway

The falling interest rates have made both these capital-intensive companies attractive. However, I am more bullish on Enbridge due to steady cash flows from its long-term, inflation-indexed contracted business and the uncertainty over the unfavourable policy changes in the telecom sector.