Investors’ expectation that the Federal Reserve of the United States could cut its benchmark interest rate next month and strong quarterly earnings appear to have driven the Canadian equity markets higher, with the S&P/TSX Composite Index rising 12.9% year to date. However, the impact of tariffs on global economic growth is a cause of concern.
Given the uncertainty, investors can consider investing in quality dividend stocks with solid underlying businesses and stable cash flows. These companies would help investors earn stable passive income while delivering stability to their portfolios. Given their consistent payouts, these companies are less susceptible to broader market volatilities. Also, investors can reinvest dividends to earn superior returns. Against this backdrop, let’s look at the following two dividend stocks that I am bullish on.
Enbridge
Enbridge (TSX: ENB) operates a pipeline network, transporting oil and natural gas across North America under a tolling framework and long-term take-or-pay contract. It also operates low-risk natural gas utility assets and renewable power-producing facilities that sell their power through PPAs (power-purchase agreements).
Given its diversified and regulated asset base, the Calgary-based energy infrastructure company generates stable and predictable cash flows, allowing it to pay and raise dividends consistently. It has paid dividends uninterruptedly for the last 70 years and has also increased its dividend at an annualized rate of 9% since 1995. Its annualized dividend payout of $3.77/share translates into a forward dividend yield of 5.85%.
Moreover, Enbridge is continuing with its $32 billion backlog projects by making annual investments of $9-$10 billion. These investments could boost its financials and cash flows in the coming years. The company’s management predicts its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to grow at an annualized rate of 5% for the rest of this decade. Further, the company has also strengthened its financial position by improving its net debt-to-EBITDA multiple from five at the beginning of this year to 4.7, and ended the second quarter with liquidity of $12.7 billion. Considering all these factors, I believe Enbridge is well-equipped to continue paying dividends at a healthier rate.
Canadian Natural Resources
Another stock that I am bullish on is Canadan Natural Resources (TSX: CNQ), which has raised its dividend at an annualized rate of 21% for the last 25 years. Its diversified and balanced asset base, efficient and effective operations, and low capital reinvestment requirement have reduced its expenses, thereby lowering its breakeven point and generating healthy cash flows. These reliable cash flows have allowed the oil and natural gas producer to raise its dividend consistently, with its forward dividend yield currently standing at 5.72%.
Moreover, the Calgary-based energy company has larger oil and natural gas reserves, with a substantial portion of these reserves being high-value SCO (synthetic crude oil), light crude oil, and NGLs (natural gas liquids). Additionally, the company has planned to make a capital investment of over $6 billion this year, strengthening its production capabilities. The company is also upgrading its assets and improving operating efficiency to lower its operating expenses, which could drive its profitability. Its financial position looks healthy, with its liquidity at $4.8 billion at the end of the second quarter. It also trades at a reasonable next-12-month price-to-earnings multiple of 12.3, making it an attractive buy.
