Building a reliable passive income stream is one of the most common goals for Canadian investors, whether you are approaching retirement or simply looking to strengthen your long-term portfolio. And when it comes to high-quality Canadian dividend stocks, few companies are as reliable and established as Enbridge (TSX:ENB), the massive energy infrastructure stock.
Dividend stocks are some of the best investments to buy for a number of reasons. First off, although stock prices can fluctuate wildly in the short term, dividends provide a steadier source of returns that investors can count on through different market cycles.
Therefore, not only do they generate you consistent income and a return on your investment, whether the market is trending up, down or sideways, but they also tend to be less volatile than their non-dividend-paying peers.
That is why dividend stocks continue to play such an important role in many investors’ portfolios. High-quality dividend stocks, such as Enbridge, are companies that are well-established, allowing them to generate consistent cash flow, which funds the consistently growing dividends.
In fact, the consistent cash flow generation and therefore constant increases to the dividend are a large part of what makes Enbridge one of the best dividend stocks in Canada. In fact, Enridge has increased its dividend annually for more than three straight decades now.
So, although uncertainty is persisting in this environment and Enbridge stock is trading near its 52-week high, here’s why it continues to be one of the best dividend stocks to buy for passive income seekers.
Why is Enbridge one of the best dividend stocks passive income investors can buy and hold for years?
One of the biggest reasons Enbridge continues to stand out as a top dividend stock is the nature of its business and just how essential it is to the North American economy.
Furthermore, although Enbridge is an energy company, the vast majority of its earnings come from long-term, contracted energy infrastructure assets, meaning that Enbridge doesn’t need to rely on volatile commodity prices to generate cash flow.
For example, Enbridge owns and operates one of the largest pipeline networks in North America. In fact, Enbridge transports roughly 30% of the crude oil produced in North America and roughly 20% of the natural gas consumed in the United States.
These assets operate under regulated contracts, creating predictable revenue for Enbridge. And that stability is what allows the company to confidently pay and raise its dividend year after year.
Another reason Enbridge remains attractive for income investors is its focus on balance sheet strength and cash flow coverage. While the company carries significant debt, management has spent years improving leverage metrics and extending debt maturities.
Therefore, not only does Enbridge offer an attractive yield of 6% and consistent dividend growth each year, but it also ensures the dividend is sustainable.
For example, right now Enbridge’s annual dividend amounts to $3.88 per share. Meanwhile, according to Enbridge’s guidance, the company expects to generate distributable cash flow per share of $5.70 to $6.10.
So, even if Enbridge only hit the bottom of that range, the dividend would still only have a payout ratio of 68%.
It is also worth noting that Enbridge continues to invest in expansion projects across its liquids, gas transmission, and gas distribution businesses. In addition, Enbridge has been steadily growing its portfolio of renewable energy assets as it continues to position itself for the future.
So, if you’re looking for a high-quality dividend growth stock that can generate significant passive income for years to come, there’s no question Enbridge is one of the best you can buy.
