It’s not very common that you find ultra-high yields among the very largest stocks in a given country. In large countries like the U.S. and China, the biggest companies are tech firms, and those don’t pay very much in dividends. Canada is a little different. The TSX Index is currently dominated by banks, telecommunications companies, and energy companies. As a result, some of its largest constituents have very high dividend yields. In this article, I will explore one high yield stock with a 6.7% payout that dominates the TSX Composite Index.
Enbridge
Enbridge Inc (TSX:ENB) is a Canadian pipeline stock that pays a $0.92 quarterly ($3.68 annual) dividend. At today’s stock price of $55, it provides a 6.7% yield. As the fourth largest company in Canada by market cap, Enbridge dominates the TSX Energy sector.
To put ENB’s yield in perspective:
Let’s imagine you invested $100,000 into Enbridge shares. With a 6.7% yield, that relatively small position would pay you a full $6,700 per year in dividends. That’s more than many landlords make on a single property after deducting utilities and mortgage servicing!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Enbridge | $55 | 1,818 | $0.92 per quarter ($3.68 per year) | $1,672.50 per quarter ($6,690 per year) | Quarterly |
How has Enbridge managed to achieve such a high yield?
Partially it’s an achievement: the company has raised its payout every single year for the last nine years (albeit at a slower pace in recent years compared to prior ones). Apart from that, it’s also a sign of the fact that the company’s stock hasn’t done very well. Enbridge stock is barely up over a five-year period. In fact, it’s down 15% from its highest set in 2015! Like many oil companies, ENB’s earnings went down in 2015, as oil prices crashed steeply around that time.
Today is different. Although oil is as volatile as ever, demand for the commodity remains strong, and continues to grow. Additionally, the supply coming out of OPEC countries right now is relatively low. As a result of these factors, many top investors, such as Warren Buffett, believe that oil prices are likely to remain relatively high. That should bode well for Enbridge’s clients, who will keep the oil flowing through ENB pipelines (more likely than not).
Market dominance
One factor that Enbridge has going for it right now is dominance in the pipeline sector – I don’t just mean within Canada, but in all of North America. The company ships 30% of the crude oil consumed on the continent. It also supplies 75% of Ontario’s natural gas. These factors combine to ensure that Enbridge’s pipelines remain full or near-full, and give the company some pricing power.
One issue to watch
One issue that Enbridge has historically struggled with is a high payout ratio (payout ratio means dividends over earnings and measures dividend sustainability). Enbridge’s payout ratio has been above 100% for most of its history. When a company’s payout ratio is over 100% for a long time, it indicates that the dividend is at risk of being cut. Enbridge didn’t cut its dividend, but it did slow the pace of annual dividend hikes from 10% to 3%. As a result, the payout ratio is now very slightly below 100% – but still high enough that investors will want to monitor it. On the whole, though, ENB is one stock with a heck of a lot of dividend potential.
