The Canadian equity markets have turned volatile over the last three trading days, with the S&P/TSX Composite Index falling around 2%. The fear of higher valuations amid substantial increases in the equity markets this year and uncertainty over the impact of Donald Trump’s tariffs have made investors nervous, leading to a selloff. Amid the uncertainty, investors should look to invest in quality dividend stocks to strengthen their portfolios and earn a stable passive income.
Against this backdrop, let’s assess which among Enbridge (TSX: ENB) and Bank of Nova Scotia (TSX: BNS) would be a better dividend stock to buy right now.
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Enbridge
Enbridge operates pipeline networks transporting oil and natural gas across North America. It is also involved in natural gas utility and renewable energy generation business. With 98% of its cash flows underpinned by long-term contracts, the company’s financials and cash flows are less susceptible to market volatility. These stable cash flows have allowed the company to pay dividends uninterruptedly for the last 69 years. Also, it has raised its dividend for the previous 30 years and currently offers an attractive forward dividend yield of 6.37%.
Moreover, Enbridge has strengthened its position in the natural gas utility business by acquiring three facilities in the United States, making it North America’s largest natural gas utility company. Further, it is continuing with its $26 billion secured capital program, with around $5 billion already invested in the first three quarters. Moreover, the company could also benefit from the central bank’s capital easing initiatives.
Amid these growth initiatives and a favourable environment, Enbridge’s management expects its EBITDA (earnings before interest, tax, depreciation, and amortization) to grow at 7-9% through 2025 while its DCF (discounted cash flows)/share could grow at an annualized rate of 3%. Beyond 2025, the management expects its EBITDA and DCF/share to grow at 5% CAGR (compound annual growth rate). With its liquidity at $17.1 billion, the company’s financial position also looks healthy. So, I believe Enbridge is well-equipped to continue its dividend growth.
Bank of Nova Scotia
Bank of Nova Scotia is another stock that has consistently rewarded its shareholders with dividends. It has been paying dividends since 1833. Besides, it has raised its dividends at an annualized rate of 5.75% for the last 10 years while offering a forward yield of 5.41%. Its diversified revenue streams and presence across various geographical markets stabilize its cash flows, thus allowing it to pay dividends consistently. It currently pays a quarterly dividend of $1.06/share, translating into a forward dividend yield of 5.41%.
Moreover, BNS has shifted its focus away from emerging markets to North America. It has acquired a 4.9% stake in KeyCorp and is working on acquiring another 10%. With the company receiving regulatory approval from the Federal Reserve, it expects to complete the transaction within this year. This acquisition could strengthen its business in the United States.
Also, the company’s new strategy appears to have delivered the desired results, with its revenue and adjusted net income growing by 4.5% and 3.2% in fiscal 2024, respectively. The company reported an adjusted operating leverage of 2.3%, while its common equity tier-one capital ratio increased to 13.1%. Given its improving operating and financial metrics and expansion in the United States, I expect BNS to continue to drive its financials in the coming years, thus allowing it to continue rewarding its shareholders with healthy dividends.
Investors’ takeaway
Enbridge and BNS have a consistent record of paying dividends and also offer healthy dividend yields. Meanwhile, BNS trades at a cheaper next-12-month price-to-earnings multiple of 11.2, while Enbridge trades at 19.8. However, given its stable cash flows from regulated business, consistent dividend growth, and higher dividend yield, I am more bullish on Enbridge.
