Dividend stocks are companies that distribute a portion of their profits to shareholders through regular payouts. These companies deliver stable passive income, reduce volatility due to their consistent payouts, and offer a hedge against inflation. Meanwhile, investors can reinvest these dividend payouts to substantially boost their returns, thereby making them ideal for building wealth over the long term.
Against this backdrop, let’s look at two dividend stocks that would help in building wealth over the long term.
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Enbridge
Enbridge (TSX: ENB) manages a vast pipeline network that transports oil and natural gas across North America, operating under a tolling framework and take-or-pay agreements. Besides, it operates natural gas utility assets in the United States, serving 3 million customers and is boosting its presence in the renewable energy space. The company earns around 98% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) from regulated and take-or-pay contracts. It also has very minimal exposure to commodity price fluctuations, and around 80% of its adjusted EBITDA is inflation-indexed.
Therefore, the Calgary-based diversified energy company enjoys healthy and stable cash flows, irrespective of the broader equity markets, thereby facilitating uninterrupted dividend payouts for the previous 70 years. It has also raised its dividends at an annualized rate of 9% since 1995, thereby offering a forward dividend yield of 5.7%.
Additionally, Enbridge is expanding its asset base through a disciplined capital investment approach of $9–$10 billion in annual investments, which would expand its liquids, natural gas transmission and distribution, and renewable assets. Additionally, it has strengthened its financial position by lowering its debt-to-EBITDA multiple from 5 at the beginning of this year to 4.7. Given its healthy growth prospects, the company’s management expects its adjusted EBITDA and discounted cash flow per share to grow in the mid-single digits in the coming years. Given its strong growth prospects and improving financial position, I expect Enbridge to continue delivering attractive dividends to shareholders, making it a compelling buy.
Fortis
Another dividend stock ideal for long-term wealth building is Fortis (TSX: FTS), which serves around 3.5 million customers by meeting their natural gas and electric needs. The company operates a highly regulated utility business, with 99% of its operations supported by a regulated asset base and roughly 93% of its assets dedicated to low-risk transmission and distribution activities. Therefore, its financials are less susceptible to economic cycles and market volatility, thereby generating healthy cash flows and allowing it to raise its dividend consistently. It has raised its dividend uninterruptedly for the last 51 years and currently offers a healthy dividend yield of 3.4%.
Moreover, Fortis is expanding its asset base through its five-year capital investment plan of $26 billion, aiming to expand its rate base by an annualized 6.5% to reach $53 billion by 2029. The company anticipates funding approximately 70% of these investments through cash generated from operations and dividend reinvestments. Therefore, these investments won’t substantially increase its leverage. Along with these expansions, the company’s improving operating efficiencies through the implementation of efficiency programs and customer rate revisions could boost its financials in the coming years. Amid its healthy growth prospects, Fortis’s management expects to grow its dividend at an annualized rate of 4–6% through 2029.
