Dividend companies distribute a portion of their profits to their shareholders as dividends. These companies may provide a stable source of passive income for their shareholders, thereby supporting long-term wealth creation. Further, investors can reinvest those dividend payouts to earn superior returns. Against this backdrop, let’s look at two solid dividend stocks that can build wealth over the long term.
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Enbridge
Enbridge (TSX: ENB) is a diversified energy infrastructure company with a vast pipeline network that transports oil and natural gas across North America. The company relies on a tolling framework and long-term take-or-pay contracts to support the movement of these resources. Additionally, it operates three low-risk natural gas utility assets, serving three million customers across five states in the United States.
The energy infrastructure giant also operates 38 renewable energy assets with a total power production capacity of 7.2 gigawatts. Meanwhile, it sells most of the power produced from these facilities through long-term PPAs (power purchase agreements), shielding its financials from price and volume fluctuations. Given its highly regulated business, less than 1% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is susceptible to fluctuations in commodity prices. Further, around 80% of its adjusted EBITDA is inflation-protected. Therefore, the company generates stable and predictable cash flows, enabling it to pay dividends uninterruptedly for 70 years, while increasing its dividend at a 9% compound annual growth rate (CAGR). It currently offers a juicy forward dividend yield of 5.7%. Besides, it has delivered an average total shareholders’ return of 11.9% for the last 20 years.
Moreover, the Calgary-based energy company has identified $50 billion worth of growth opportunities across its business segments. Meanwhile, the company intends to allocate $9–10 billion each year towards capital projects to drive asset base expansion. These expansions could boost its financial performance in the coming years. Meanwhile, the company’s management expects its adjusted EBITDA to grow at an annualized rate of 5% for the remainder of this decade. The company’s net debt-to-EBITDA multiple has improved from 5 at the beginning of this year to 4.7. Considering all these factors, I believe Enbridge could continue paying dividends at a healthier rate.
Canadian Natural Resources
Another Canadian dividend stock that I believe is a long-term wealth builder is Canadian Natural Resources (TSX: CNQ), which operates a diversified portfolio of energy assets in North America, the North Sea, and Offshore Africa. Given its high-value reserves, efficient and effective operations, and lower capital reinvestment requirements, the company’s expenses and breakeven are on the lower side compared to its peers. Therefore, the Calgary-based energy company enjoys healthy cash flows, which have enabled it to raise its dividend for 25 years at an annualized rate of 21%. Its quarterly dividend payout of $0.5875/share translates into a forward dividend yield of 5.5%.
Moreover, CNQ has continued to strengthen its production capabilities through capital investments of $6 billion for this year. It plans to drill 182 net primary heavy crude oil multilateral wells this year, which is 26 wells more than it had planned earlier. Along with organic growth, the company is continuing with opportunistic acquisitions, which could boost its production in the coming quarters. Given its healthier growth initiatives, I expect CNQ to continue with its dividend growth in the coming years, thereby enhancing shareholders’ value.
