The only thing better than a high-yield dividend stock is a high-yield dividend stock that can guarantee double-digit percentage dividend raises annually.
When it comes to most 6.4% yielders, the safety of the dividend is naturally a central topic of discussion. But with Enbridge (TSX:ENB)(NYSE:ENB), the company not only has the means to sustain its dividend over the intermediate term, but it also has the capacity to keep its “dividend promise” by guaranteeing 10% in annual dividend raises moving forward.
Come 2020, pipeline stocks could become great again
The pipeline stocks are profoundly out of favour amid a ridiculously unfavourable Canadian energy environment. As high-quality yields become harder to come by in 2020, I have a feeling that many of today’s best out-of-favour pipeline players could be ready to receive a wave of investment, even if no meaningful progress is made.
You see, most investors have grown fed up with the endless project delays and regulatory roadblocks set forth many of the midstream operators that have been feeling the pressure since the energy sector fell into a tailspin.
The only thing investors hate more than a track record of unfavourable events is forward-looking uncertainty. And with Enbridge, there’s no shortage of uncertainty, whether we’re talking about where oil prices will be in the year ahead, or whether regulators (like those in Minnesota) will give the green light on a vital project (the Line 3 Replacement).
In a way, expectations (and the valuation) is already set low. With Enbridge, uncertainties are a certainty, but so too are the 10% in annual dividend raises, which will happen regardless of what happens in the year ahead.
Another dividend raise? Yes, please!
Just last week, Enbridge announced yet another 10% dividend raise to $3.24 per share, bringing the yield back up to 6.4% after it fell due to significant share price appreciation on the year. Management continues to guide 5-7% in average annual distributable cash flow, which bodes well for future dividend growth.
Enbridge may be an uncertain player in an unpredictable industry. Still, the shareholder-friendly management team has done a heck of a lot to inject some certainty into the name to protect its shareholders from a very volatile industry. The dividend is generous, and it’s going to keep going up, rewarding those who stay the course substantially over the next five years and beyond.
At the time of writing, Enbridge trades at 12.9 times EV/EBITDA, 10.1 times cash flow, and 1.7 times book, all of which are lower than the stock’s five-year historical average multiples of 20.8, 10.5, and 2.9, respectively.
Given the odds of having Line 3, a significant source of growth, online in 2021, I’d say the stock has a highly favourable risk/reward trade-off at these levels given the massive dividend you’ll get today, the 10% in annual dividend hikes you’ll likely receive, and capital appreciation potential.
