Some investors would argue that a company like Enbridge (TSX: ENB), which has had a dividend yield as high as double-digit territory during market-wide selloffs, is the furthest thing from a truly “safe” security.
That’s a fair assessment, given the traditional level of volatility in key sectors, including energy.
However, I’ve long viewed Enbridge as among the safest dividend stocks in the market. Like many investors seeking both up-front yield today and dividend growth over time, there’s reason to believe that Enbridge can continue on its growth path, and potentially continue to increase its growth rate over time.
Let’s dive into why this dividend stock, which yields nearly 6% at the time of writing, is worth buying.
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Dividend stability could be in greater demand
What many investors really want right now isn’t the flashiest yields. Bonds and other fixed-income securities can provide yields of nearly 5% right now, depending on how far out on the yield curve investors want to go.
Rather, it’s more about dividend stability than anything else. Enbridge’s existing yield of right around 5.9% is about as high as many investors will want to go (on the stability front), with yields in excess of this level generally perceived to be reserved for companies that have greater underlying risk of a dividend cut or requirement for debt raises on the horizon.
With a 3% dividend increase in March of this year, Enbridge has also shown the market that the company is on the right fiscal track. Investors appear to be buying into the narrative that the company’s nearly three-decade-long dividend increase track record is robust. I tend to agree.
Strong fundamentals
The other piece of the confidence narrative around a company like Enbridge and its ability to not only sustain (but raise) its dividend over time comes down to the company’s underlying financial stability.
On this front, Enbridge remains one of the best dividend stocks to consider in my view. Given the company’s core business model of providing a rather incredible network of pipelines across North America, investors benefit from very stable cash flow growth over time. The company has seen its revenue surge more than 30% on a year-over-year basis this past quarter, with net income growing at a 16% clip.
In that context, a 3% increase does seem relatively muted. But with Enbridge’s management team continuing to focus on paying down debt, and the company’s cash flow profile improving, Enbridge’s solid balance sheet should prompt more buyers seeking yield to consider this name. That’s what I’m banking on, making this a total return stock I think is worth owning right now.
