In terms of top dividend stocks with long-term upside and the potential to grow into an even more impressive valuation, I’d argue that Enbridge (TSX:ENB) is one company that is probably overlooked right now.
Indeed, starting with the company’s 5.6% dividend yield, there’s a solid passive-income argument to be made supporting an ownership thesis in one of North America’s largest pipeline operators. And with an increasing focus on energy independence and growing geopolitical uncertainty right now, I’d say that Enbridge’s network is among the most vital infrastructure portfolios investors aren’t thinking about right now.
Let’s dive into why this company remains a top dividend stock for passive investors looking for income security in retirement. Here’s why this is a stock I think investors can buy today and hold for decades, even after its impressive run.
Cash flow stability matters
Given the aforementioned geopolitical turmoil out there, governments are going to continue to place increased emphasis on shoring up their energy security initiatives. And given all the ado around AI as a key growth driver of the North American economy, ensuring that energy can move from where it’s produced to where it’s utilized is going to become a much bigger talking point in the years and decades to come.
I’d argue that Enbridge’s underlying fundamentals are among the best of the options available to investors looking for exposure to pipeline operators. The company’s big earnings beat this past quarter (bringing in $0.65 of earnings per share, which was 12% above expectations) is a big deal. That’s because the company’s high dividend yield has been a bone of contention among some investors, who have argued that the company would be better off paying down its debt than returning capital to shareholders.
It appears Enbridge can do both, and has been doing both in recent quarters. With most of the company’s revenue tied to long-term contracts with energy producers, this is a company with cash flow stability that should actually be able to grow its dividend over time.
Bottom line
I’d argue that Enbridge’s ability to add new pipe to its network, or expand existing pipeline routes, is better than it’s been in some time. With both the Canadian and American administrations looking for ways to shore up their fossil fuels infrastructure, now is the time for Enbridge to consider getting some expansion projects approved.
But even without these potential growth catalysts (which I’d argue are more likely than they’ve been in a long time), the company’s core operations and increasing balance sheet strength make this a dividend stock that shouldn’t be ignored right now.
