How to Earn $668 in Passive Income With Just $10,000 in Savings

Investing in blue-chip dividend stocks such as Enbridge should help you generate a passive-income stream at a low cost.

Investing in the equity market is a proven strategy for generating inflation-beating returns and building long-term wealth. While the best way for most investors to gain exposure to the equity market is to buy and hold low-cost, passively managed index funds, income-seeking investors should consider increasing exposure to blue-chip dividend stocks.

Basically, you need to identify a portfolio of fundamentally strong companies that pay you a tasty dividend yield. As dividends are not guaranteed, these companies should generate stable cash flows across market cycles, a portion of which should be paid to shareholders via dividends. One such TSX dividend stock is Enbridge (TSX: ENB), which offers you a high forward yield of 6.6%. Let’s see why.

The bull case for Enbridge stock

Enbridge is a diversified energy infrastructure giant with a widening portfolio of cash-generating assets. Its four primary business segments include liquids pipelines, gas transmission and midstream, gas distribution and storage, and renewable energy.

Notably, Enbridge is well-positioned to benefit from the artificial intelligence megatrend as data centre growth will drive demand for natural gas and other cleaner energy sources. In the recent earnings call, Enbridge’s chief financial officer, Patrick Murray, explained, “Throughout our utility footprint, we are engaged in additional early-stage discussions with data centers that we expect to translate into future growth.”

According to Enbridge, data centers need base low-power solutions such as natural gas to support the energy requirements of hyperscalers.

In the gas transmission segment. Enbridge emphasized that its assets are located within 50 miles of 45% of all natural gas power generation in North America. With a broad range of customers, this segment has secured 700 million cubic feet a day of transmission capacity to serve up to 5,000 megawatts of new gas power demand in the second quarter (Q2).

Last September, Enbridge announced plans to acquire three natural gas utilities from Dominion Energy for $19 billion. It has already completed the acquisition of two utilities, which should drive future earnings and cash flow higher.

In Q2 of 2024, Enbridge increased its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 8%, while its distributable cash flow per share stood at $1.34.

In 2024, Enbridge forecasts EBITDA to range between $17.7 billion and $18.3 billion, which reflects the partial-year contributions from the three U.S. gas utilities. Moreover, Enbridge forecasts a distributable cash flow per share between $5.40 and $5.80. At the midpoint, Enbridge’s payout ratio is sustainable at 65%, providing it the flexibility to target acquisitions, raise dividends, and strengthen the balance sheet by reducing long-term debt.

The company has reaffirmed its near-term financial outlook of EBITDA growth between 7% and 9% through 2026, while earnings per share growth is forecast at 5%.

The Foolish takeaway

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge$54.57$183$0.915$167Quarterly

Investing $10,000 in Enbridge stock will allow you to buy 183 company shares. Given its annual dividend of $3.66 per share, 183 shares would mean your dividend payments in the next 12 months would total $668. If Enbridge increases its payout at a compound annual growth rate of 7%, your dividend payment will double in the next 10 years.

Fool contributor Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

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