Enbridge (TSX:ENB) Stock Increases Dividend: Should You Buy?

Enbridge’s (TSX:ENB)(NYSE:ENB) dividend increase brings the stock to a forward yield of 7.8%. Here’s what you can expect from the stock.

| More on:

Enbridge’s (TSX:ENB)(NYSE:ENB) stock price has largely been depressed this year. At one end, it’s because of worries from pandemic disruptions. At the other end, the market questioned whether its big dividend yield was sustainable.

Specifically, the dividend stock fell more than 36% from peak to trough during the market crash earlier this year. Since then, ENB stock has largely stayed below $44 per share, failing to get even close to its previous high of above $50 per share.

Some Enbridge investors were holding their breath for the investor day yesterday. They can feel relieved now, as the company announced another dividend increase, marking the start of its 25th year of consecutive dividend growth.

Is Enbridge stock’s dividend increase good enough?

Previously, I’d noted that although Enbridge had a 10-year dividend-growth rate of 15%, investors should expect slower dividend growth of 3-5% per year over the medium term.

Yesterday, Enbridge announced a dividend increase of 3.1% that was at the low end of my estimate. Specifically, the bigger annualized payout for 2021 is $3.34 per share (up from 2020’s $3.24) and will be paid on a quarterly basis, as usual. The dividend increase is expected to be backed by distributable cash flow per share (DCFPS) growth of about 4%.

Some investors may be dissatisfied with a mere 3% dividend increase. However, let’s not forget that Enbridge’s dividend yield was already big before the hike.

With the dividend increase, its forward yield is now 7.8% at $42.80 per share at writing. That’s immediately more than the long-term average market return of 7% for just holding the stock.

Enbridge stock is as close to a buy-and-forget income stock as it gets for passive investors who want little work on managing their portfolios.

Enbridge’s resiliency

One quality that sets Enbridge apart from its smaller peers is the resiliency of its cash flow.

First, approximately 95% of Enbridge’s customers are essentially investment grade. This implies there’s a low probability that its customers will go bankrupt.

As a result, its cash flow was unfazed, even in the face of this pandemic, which had wide economic impacts. Likewise, its cash flow remained intact in the 2008/2009 recession, the commodity price collapse in 2014, and the Alberta forest fires in 2016.

The company is also investment grade with a solid S&P credit rating of BBB+.

Second, 98% of Enbridge’s cash flows are regulated or contracted. Adding that less than 2% of its cash flow is subject to commodity price volatility, its cash flow is low risk.

As usual, management estimates a marginal boost to its adjusted EBITDA, a cash flow proxy, this year.

The Foolish takeaway

Investors should accept that Enbridge is no longer the high-growth dividend-growth stock it once was. Instead, it has grown to be more mature and now provides a juicy forward dividend yield of 7.8%.

Enbridge has a $16 billion capital program that can drive DCFPS growth of about 4-5% through 2023. With this new guidance, it’s safe to assume annual dividend growth of about 3-4% through the period. Therefore, new buyers are looking at an estimated total return of about 11-12% in a low-risk income investment.

This total returns estimate didn’t account for the discount Enbridge stock is trading at. According to the 12-month analyst consensus price target, the dividend stock trades at a discount of 15%, which can boost total returns.

Should you invest $1,000 in Ballard Power Systems right now?

Before you buy stock in Ballard Power Systems, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Ballard Power Systems wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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 Kay Ng owns shares of Enbridge. The Motley Fool owns shares of and recommends Enbridge.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

hand stacks coins
Dividend Stocks

I’d Put $7,000 in These Legendary Dividend Growers to Earn for the Next Decade

If you've got some cash for your TFSA, here are two stocks that should give you growing dividend income and…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Here’s How to Catch up to the Average Canadian TFSA at Age 45

The TFSA can create immense passive income, and this dividend stock is an excellent choice.

Read more »

edit Safe pig, protect money
Dividend Stocks

How I’d Secure My Retirement With a $7,000 Investment Today

If you have the discipline to invest with a long-term strategy, here’s how you can use $7,000 in a TFSA…

Read more »

Canadian flag
Dividend Stocks

TFSA: 3 Canadian Stocks to Buy and Hold for Life

The TFSA is the perfect place to create income for years, and these three are the best Canadian stocks to…

Read more »

dividends grow over time
Dividend Stocks

Where to Invest $9,000 in the TSX Today

These stocks pay attractive dividends that should continue to grow.

Read more »

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

The Smartest Canadian Stock to Buy With Just $300 Right Away

If you've only got a bit to invest, then this is one of the best Canadian stocks to consider.

Read more »

ways to boost income
Dividend Stocks

How I’d Transform $7,000 Into a Lifetime of Passive Income

A $7,000 investment in these TSX stocks today could generate $120.54 in tax-free dividend income every quarter.

Read more »

A meter measures energy use.
Dividend Stocks

1 Magnificent Utility Stock Down 13% to Buy and Hold Forever

This top utility stock is an excellent buy on dips for investors to earn income and long-term price appreciation.

Read more »