One proven way to build a passive-income portfolio is through investments in high-quality dividend stocks. Notably, several TSX stocks have been paying and increasing their dividends, making them reliable investments to generate regular income across market conditions.
For instance, utility companies like Fortis and Canadian Utilities, financial services giants like Bank of Montreal and Royal Bank of Canada, and energy companies such as Canadian Natural Resources have long been investors’ favourites, consistently rewarding them with growing dividend payments over the years. Their steady earnings and ability to maintain and increase distributions through various economic cycles highlight the strength of their operations and cash flows.
While these fundamentally strong companies remain solid investment options for income-focused investors, here I’ll focus on a TSX stock offering a high and sustainable yield of 5.8%. Moreover, the company has been paying and increasing its dividend for decades, making it a reliable income stock to buy and hold.
A top dividend stock offering a 5.8% yield
Among the top dividend stocks on the TSX, investors could consider Enbridge (TSX:ENB). This energy transportation company has paid dividends for over seven decades, regardless of commodity and economic cycles. In addition, it has raised its annual dividend since 1995, reflecting the company’s ability to generate strong, predictable cash flows, supported by its 200 diversified revenue streams.
Enbridge’s solid payout history also reflects the resilience of its business model and ability to generate steady earnings and distributable cash flow (DCF) despite commodity price volatility.
Notably, 98% of its earnings before interest, depreciation, and amortization (EBITDA) stems from regulated or long-term, take-or-pay contracts. Moreover, about 80% of Enbridge’s EBITDA is protected against inflation, helping it sustain its payouts over time. Further, its extensive asset footprint connects major supply and demand zones across North America, driving high asset utilization and positioning the company to capitalize on growing energy demand.
Enbridge is offering a quarterly dividend of $0.97 per share, yielding over 5.8% at the current market price.
Enbridge to reward shareholders with a higher dividend
Looking ahead, Enbridge’s diversified revenue base and the ongoing momentum in its core liquid pipeline and utility businesses provide a solid base for continued dividend growth. The company’s resilient business model, supported by a vast infrastructure network and disciplined capital allocation, will strengthen its DCF.
Enbridge targets a dividend payout ratio of 60–70% of its DCF. The payout ratio is sustainable in the long run and also enables the company to retain sufficient capital to fund new growth projects.
Beyond the strength in its core operations, Enbridge’s investments in renewable energy position it well to capitalize on growing energy demand led by artificial intelligence (AI)-driven data centre projects. Enbridge is also capitalizing on the global energy transition, including opportunities such as coal-to-gas conversions.
Management expects the company’s earnings and DCF per share to grow at a mid-single-digit rate over the medium term. This indicates that Enbridge’s dividend will likely rise at a similar rate in the coming years.
Overall, Enbridge’s solid dividend growth history, resilient earnings, and visibility into future payouts make it a top dividend stock for investors to hold for decades.
