Is Enbridge Stock or Telus the Better Buy for Canadians?

The Canadian dividend landscape is heating up. On one side, one of the dividend kings, Telus Corporation (TSX:T), is offering an attractive yield of 8.8%, but a risk of a dividend cut haunts the stock. On the other side, dividend darling Enbridge (TSX:ENB) could face disruption if Venezuela oil risks materialize. Both the stocks, which were low-risk safe dividend harbors until 2024, are now facing heavy leverage and industry-wide disruption.

In such a scenario, it is common to wonder if it still makes sense to accumulate these stocks for their dividends.

Let’s look at the bull and bear scenario of the two and chart out a risk mitigation plan.

Bull and bear case for Enbridge

Enbridge’s biggest strength, transmitting about 30% of the crude oil produced in North America, could become its weakness. The United States capture of the Venezuelan President and taking charge of refining Venezuelan oil could pose tough competition to Canadian oil companies.

If the US reduces oil imports from Canada, the economic value of Enbridge’s oil pipelines that transmit oil from Canada to the United States could be reduced. At the same time, Canada’s move to look for new export markets for its oil could create new pipeline opportunities for Enbridge.

Now, any of the above changes in the oil supply chain will not happen overnight. It will take years and significant infrastructure investment, as it happened with North America’s liquified natural gas (LNG) exports to Europe after the 2022 Russia-Ukraine war.

Enbridge might channelize oil pipeline development to exports to Asia and Europe, which could drive the stock price up. Or Enbridge could reduce exposure to oil pipelines and invest the money in gas pipelines, as it has been doing for the last three years.

In the best-case scenario, Enbridge may continue with its plan to grow dividends by 5% from 2027 onwards after growing them by 3% in 2026. In the worst-case scenario, Enbridge may pause dividend growth for a few years, breaking its 30-year dividend growth spree. Which scenario plays out will depend on how the US-Canada trade negotiations progress.

Bull and bear case for Telus

Telus, on the other hand, has already paused its dividend growth to channel the cash flow towards deleveraging the balance sheet. It will resume dividend growth once the share price and dividend yield reflect the company’s true fundamentals. What does the management mean by that?

Telus stock has dipped 49% from its 2022 peak and is trading near its 10-year low. This has increased its dividend yield to 8.8%. A $5,000 investment can buy you 265 shares of Telus, which will pay $443 in annual dividend income. It is higher than Enbridge’s $291 on a $5,000 investment. And it’s not just higher in 2026 but 38.5% higher than Enbridge’s 2028 income, growing at a 5% average annual rate.

It means that if you invest $5,000 in Telus, you will get a higher payout even if it doesn’t grow dividends for the next three to five years.

However, this advantage will vanish if Telus cuts its dividend by 33%. The risk of a dividend cut is there, as the company’s payout ratio after including the dividend reinvestment plan (DRIP) stocks has been above 100% for three years. If Telus is unable to reduce debt and increase free cash flow to the level that the payout ratio comes below 100%, a dividend cut is imminent.

Enbridge or Telus: Which is a Better Buy for Canadians?

Telus is a stock to buy at the dip as its debt reduction will give shareholders capital appreciation. Moreover, Telus offers a DRIP, and Enbridge doesn’t. However, Enbridge’s dividend is safe as its payout ratio is 60– 70%. A $4,000 investment in Telus to grab the 8.8% yield and a $1,000 investment in Enbridge to mitigate the risk of dividend cuts can maximize your returns and mitigate risk.