Why You’d Be Smart to Buy This Top Dividend Stock in 2020

Here is why smart investors should buy Enbridge Inc. (TSX:ENB)(NYSE:ENB), a top dividend stock from Canada.

| More on:

This year has been a good year for those who bought top dividend stocks. Worries about an imminent recession kept investors on the edge; many exited their high-risk bets and moved their funds to safe, income-producing stocks. That shift created a powerful rally in dividend stocks, producing double-digit gains for investors.

The question going forward is whether next year will be as profitable for dividend stocks as it was 2019. On the horizon, there is not much evidence that supports the kind of rally that we saw in dividend stocks last year. 

U.S. and Canadian economic data generally remain strong, while the world’s two largest economies — U.S. and China — are working to resolve their trade dispute. These changing conditions and a shift in sentiment among investors and businesses have relieved pressure on central bankers to cut interest rates. 

As dividend-paying stocks move in the opposite direction to rates, they are unlikely to rally further if the interest rate environment remains stable. That situation calls for a careful stock selection, finding companies that are still offering higher yields, and they are considered to be safe and reliable. With this theme in mind, I’ve picked this top dividend stock, which you could consider buying in 2020.

Enbridge

North America’s largest pipeline operator Enbridge (TSX:ENB)(NYSE:ENB) is one of my favourite picks among stocks that are still offering decent yields.

The company is in a good position to take advantage of North America’s strong energy economy. The company operates across North America, fueling the economy and fulfilling consumers’ energy needs. Enbridge moves nearly two-thirds of Canada’s crude oil exports to the U.S., transports about 20% of the natural gas consumed in the U.S., and operates North America’s third-largest natural gas utility by consumer count.

In an update to investors yesterday, Enbridge announced it will increase its quarterly dividend by 9.8% a share, effective March 1, making good on the company’s stated policy of offering about 10% raise in payouts each year.

The investor briefing came on the heels of an updated Line 3 environmental review released by a Minnesota state agency on Monday.

In that review, the state Department of Commerce found no serious threat to Lake Superior if crude oil leaks from the pipeline that carries Canadian crude from Alberta across North Dakota and Minnesota on the way to Enbridge’s terminal in Superior, Wisconsin.

The Line 3 expansion would double the capacity of the existing pipeline, which was built in the 1960s and is increasingly subject to cracking and corrosion. President and CEO Al Monaco said Enbridge continues to anticipate a strong financial return on Line 3, despite the cost of increased community and regulatory engagement on large-scale projects.

Enbridge expects distributable cash flow for each share for 2020 to be in the range of $4.50-$4.80. Projected earnings before interest, taxes, depreciation, and amortization are around $13.7 billion.

Bottom line

Enbridge is a good defensive stock to buy in 2020, given the company’s strong earnings momentum, and many positive catalysts could boost its stock value. The company pays a $0.73-a-share quarterly dividend with an annual dividend yield of close to 6%. The payout has been expected to rise 10% per year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar owns Enbridge stock. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »