Do you plan on investing $7,000 in the markets with an aim to earn passive income?
If so, dividend stocks are the way to go.
With dividend stocks, you can earn considerable sums of passive income each and every year. Some of them have very high yields coming right out of the gate, for example, 5% or higher. Additionally, many of the stocks grow their dividends over time, resulting in extraordinarily high yields-on-cost for patient investors who stay the course.
In the late 1980s and early 1990s, Warren Buffett and Charlie Munger started accumulating a position in Coca-Cola stock. Today, those shares yield 54% on the price that Buffett and Munger paid for them 35 years ago. That’s not to say that you could get a 54% yield on Coca-Cola shares today; you’d have to somehow pay the 1990 share price to do that. However, you can invest in high-quality dividend stocks today and hopefully enjoy a much higher yield-on-cost at some point in the future.
In this article, I will explore a stock that can pay you $388 a year, year in and year out, if you invest just $7,000 in it, which has also been growing its dividend over time.
Enbridge
Enbridge Inc (TSX:ENB) is a Canadian midstream energy company that transports energy across North America and also operates as a natural gas utility. The company is the largest pipeline in North America, with 21,000 kilometres of pipe spanning the continent. It supplies most of the oil and gas that is shipped from Canada to the United States. It also supplies 75% of the natural gas consumed in the province of Ontario.
Good performance
Enbridge has been performing quite well as a business lately.
In the trailing 12-month period, it grew its revenue, operating earnings, and operating cash flows at the following rates:
- Revenue: 33%.
- Operating earnings: 19%.
- Operating cash flow: 0.56%.
Overall, these were fairly respectable rates of growth. On the other hand, the company’s reported earnings declined in the same period. That’s not really a major long-term negative; the company saw a short-term spike in earnings last year due to non-recurring factors; this year, earnings regressed to the mean somewhat.
In addition to growing modestly, Enbridge is also highly profitable, boasting the following profitability metrics in the trailing 12-month period:
- A 41.6% gross profit margin.
- A 9.4% net margin.
- A 2% free cash flow (FCF) margin.
- A 9.5% return on equity (ROE).
- A 4.3% return on capital (ROC).
- A 2.8% return on assets (ROA).
So, we’ve got a highly profitable, growing business here – seems potentially worth investing in.
Dividend potential
One of Enbridge’s big claims to fame is its dividend yield. The stock pays a $0.9425 quarterly dividend, which works out to $3.77 per year. At today’s stock price ($68), that provides a 5.5% dividend yield. If you invest $7,000 in ENB, you should get $388 per year back in dividends. See the math below.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Enbridge | $68 | 103 | $0.9425 per quarter ($3.77 per year) | $97.02 per quarter ($388 pear year) | Quarterly |
That’s a considerable income supplement coming from a $7,000 investment. And, Enbridge’s dividend even has the potential to rise in the years ahead. Overall, it looks like a decent dividend stock to buy and hold.
