There are plenty of great dividend stocks on the market for investors to consider. Two of the frequently mentioned options are Canadian Natural Resources (TSX: CNQ) and Enbridge (TSX: ENB). Both offer generous payouts from established, cash-generating businesses. But which is the better dividend stock for investors today?
Let’s answer that by taking a closer look at what each stock offers today.
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The case for Canadian Natural Resources
Canadian Natural Resources is one of the largest oil and gas producers in Canada. The company has a massive asset base, including oil sands, conventional oil, natural gas, and offshore operations.
It’s worth noting a few key points about that asset base. First, these are long-life, low-decline assets. That means they can continue producing for decades without the same level of ongoing drilling required by many conventional fields.
The low-decline part is important. Production from those assets can decline by as little as 1% to 2% per year, far below some conventional oil fields that can decline by 10% or more annually.
That scale gives Canadian Natural Resources a major advantage, especially when commodity prices are strong.
The production setup supports one of the biggest appeals for investors, free cash flow generation. When oil prices cooperate, the company is able to generate significant free cash flow.
That cash can then be used to reinvest in the business, pay down debt, buy back shares, or increase its dividend. The company has routinely done all of that.
This means that when oil prices surge, Canadian Natural Resources follows suit. In fact, as of the time of writing, Canadian Natural Resources’ stock price has climbed over 20% year-to-date.
Turning to income, Canadian Natural Resources offers a quarterly dividend with a yield of 4.5%. The company has also provided annual upticks to that dividend for over 25 consecutive years without fail.
Canadian Natural Resources gives investors exposure to the energy sector. That does come with oil and gas volatility, but it’s offset by strong long-term growth, dividend income, and capital appreciation.
The case for Enbridge
Enbridge offers investors a different path. Instead of producing oil and gas, Enbridge is an energy infrastructure company that moves energy through its massive network.
That pipeline network consists of both crude and natural gas segments, forming what is one of the largest and most complex pipeline systems on the planet.
Each day, that network moves massive volumes of both. That includes one-third of all North American-produced crude and one-fifth of the natural gas needs of the entire U.S. market.
More importantly, Enbridge charges for use of its pipeline network, and not based on the volatile price of commodities. This means that the company is less exposed to those daily price swings.
To say that this gives Enbridge a huge defensive moat would be an understatement.
But that’s not the only segment that the company offers.
The company also operates one of the largest natural gas utilities in North America and a growing portfolio of renewable energy assets.
Those segments are backed by long-term contracts that can span decades. This gives Enbridge more stability, which is good for investors.
In short, Enbridge gets paid to move and deliver energy, regardless of which way oil prices are moving. And it’s that stability which is a major reason why investors turn to the stock.
The main appeal for investors is Enbridge’s quarterly dividend. Enbridge has been paying out dividends for over seven decades and provided investors with annual upticks to that dividend for over 30 consecutive years.
As of the time of writing, the yield offered works out to 5.1%.
For an investor focused primarily on passive income, that yield is hard to ignore.
The better dividend stock
Both stocks offer compelling options for investors, and both could serve well as part of a larger, well-diversified portfolio. They also both offer strong growth and long-term income potential.
But in this case, Enbridge looks like the better option for investors, particularly for those focused on income.
Enbridge offers a higher yield, a more predictable business model, and a long history of dividend growth. That combination makes it easier to own as a passive-income stock, especially for those investors who want the steady cash flow without the ups and downs of commodity prices.
