For Canadian investors seeking stable and moderately inflation-resistant dividend income, dividend aristocrats are their top choice. However, there are significant differences among dividend aristocrats, and their appeal is also influenced by market dynamics. Some stocks may plummet during bear markets and start offering hefty high yields. When the market is bullish, they may increase returns based on dividends through capital appreciation (if bought at the right time).
When evaluating dividend aristocrats like Enbridge (TSX: ENB), an energy stock, it is essential to consider the advantages specific to any given market. In any particular market, there are at least three reasons to consider buying this stock.
Firstly, midstream energy companies that focus on energy-related infrastructure are often safer than downstream and upstream companies, which are more susceptible to energy price fluctuations.
Enbridge falls under the midstream category, relying on long-term contracts for revenue creation. This makes the company’s income and dividends more reliable and stable.
Secondly, if we adhere to Canada’s definition of dividend aristocrats—companies that have increased dividends for five years or longer—there are dozens of dividend aristocrats traded on multiple exchanges.
But let’s understand this by a stricter but more common definition—companies that have raised dividends consecutively for at least 25 years. Canada has only a select number of dividend aristocrats—Enbridge being one of them. Enbridge has increased its dividend for 29 consecutive years.
Lastly, Enbridge follows a conservative dividend growth strategy, focusing on maintaining a healthy dividend payout ratio. This reflects the company’s commitment to long-term dividend growth.
In conclusion, besides the timeless reasons to buy Enbridge stocks mentioned above, a very compelling reason to invest in this energy stock right now is its impressive 7% yield. The current valuation of the stock is also quite reasonable, with a P/E ratio of 19.8.
