Just like good wines get better over time, finding top-tier dividend stocks with the potential to continue to provide growing dividend income (and stability) over time is difficult. Some may say impossible. And generating $2,000 per month in passive income is something that may seem to be an unattainable goal, at least over any reasonable timeframe.
However, blue chip energy infrastructure company Enbridge (TSX:ENB) is one of the best dividend stocks investors can buy for long-term passive income. At its current price of $41.13 at the time of writing, buying 8,850 shares will get investors right to that $2,000 per month income. Such an investment would cost around $364,000, so creating this sort of passive income won’t be cheap (and certainly comes with some capital risk).
That said, here’s why I think making such a large bet on Enbridge makes sense, particularly for those investors looking to diversify their RRSP or other accounts and take a large position in one higher-yielding stock.
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A dividend yield driven by stability
One of the reasons investors can generate $24,000 per year on a $364,000 investment is Enbridge’s current yield of around 6.6%. That’s a yield I would put at the upper range of being comfortable, considering once yields get toward the 10% level that’s a pretty good indication the market is likely pricing in some dividend cuts moving forward.
I don’t think that’s the case for Enbridge for a few reasons. Most importantly, the company’s entire business model, which involves transporting and delivering oil and natural gas from the source to its midstream clients, is extremely stable. So long as the taps stay on (and they will need to, for at least a few more decades), investors can bet that Enbridge will keep the profit taps on. And with the company delivering roughly 20% of all natural gas consumed in the U.S. and 30% of all crude oil produced in North America, this is perhaps the best way to play this trade in my books.
Why Enbridge looks like a long-term buy
Enbridge is a stock I think is worth holding for the long term in a retirement account, due in part to this stock’s disproportionately high yield. And while I think this yield is sustainable, I do think some significant capital appreciation is likely over time, given that the company’s valuation multiple is more attractive than it’s been in the past.
I keep going back to stability and Enbridge’s low-risk nature as the key rationale I’d put forward for owning this name. With the energy independence discussion only heating up (given rising geopolitical conflicts), Enbridge provides a nice patriotic option for Canadian investors to consider with big upside potential over the next decade or two (at a relatively low beta). That’s hard to find in this market.
Additionally, I think Enbridge should have more room to raise its distributions over time, as the company pays down debt and improves its balance sheet. I would say this company’s management team is among the best in the business. Thus, there’s a lot to like about the trajectory this company is on relative to its stable operating business.
Simply put, this is a great option for investors looking to create meaningful passive income in retirement. For those with the funds available to create a $2,000 monthly income stream, this would be a top option of mine to consider right now.
