Investing in quality dividend stocks with a growing payout should allow you to generate outsized gains in addition to a steady stream of passive income. In this article, I have identified two high-dividend TSX stocks you can buy now and benefit from a higher yield at cost over time.
Enbridge stock
Valued at a market cap of $133 billion, Enbridge (TSX:ENB) is among the most popular dividend stocks in Canada. It pays shareholders an annual dividend of $3.66 per share, translating to a forward yield of 6%. The company began paying shareholders a dividend in 1997, and in the last 27 years, it has raised these payouts by 10.3% annually, which is exceptional for a cyclical company.
Enbridge is a diversified energy infrastructure company that transports commodities such as crude oil and natural gas over its vast network of pipelines across North America. Unlike several other companies in the energy sector, Enbridge is relatively immune to fluctuations in commodity prices as it generates the majority of its EBITDA (earnings before interest, tax, depreciation, and amortization) from inflation-linked long-term contracts.
The company’s predictable cash flows have allowed it to grow dividends across market cycles. Despite its massive size, Enbridge’s growth story is far from over. For instance, it recently completed the acquisition of three natural gas utilities from Dominion Energy for $19 billion, which should drive future earnings, cash flows, and dividends higher.
Analysts expect Enbridge to increase its adjusted earnings per share from $2.78 in 2024 to $3.05 in 2025 and $3.25 in 2026. So, priced at 20 times forward earnings, ENB stock is reasonably valued, given its estimated growth rate and a high dividend payout.
Tourmaline Oil stock
Tourmaline Oil (TSX:TOU) is another energy stock with a tasty dividend payout. In addition to a base dividend, Tourmaline pays shareholders a special dividend tied to its free cash flow. In the last 12 months, Tourmaline Oil has paid investors a dividend of $3.9 per share, which translates to a forward yield of 6%.
Despite a challenging macro environment, Tourmaline Oil reported an operating cash flow of $742 million in the third quarter (Q3) of 2024 as it grew production by 11% year over year. It aims to increase production from 557,000 barrels of oil equivalent per day in Q3 to 665,000 BoE/day in 2025.
The company invested over $500 million in capital expenditures and ended Q3 with a free cash flow of $152.5 million. Tourmaline maintains a conservative balance sheet with a net debt of $1.7 billion and is well-equipped to tide over the underlying volatility surrounding the energy sector.
Analysts tracking TOU stock expects free cash flow to grow from $1.17 billion in 2024 to $1.5 billion in 2025. So, priced at 16 times free cash flow, the TSX dividend stock is cheap and trades at a 20% discount to consensus price target estimates.
The Foolish takeaway
A $1,000 investment in Enbridge stock 20 years back would be worth over $10,700 after adjusting for dividend reinvestments. Comparatively, the TSX index would have returned $5,250 on a $1,000 investment in this period.
Tourmaline Oil went public in November 2010 and has since returned 356% to shareholders, outpacing the 216% gains of the TSX index. Both Enbridge and Tourmaline have delivered outsized gains to shareholders and remain a top investment option at current multiples.
