Dividend investing is an excellent way to put your money to work in the stock market and generate long-term returns. When markets are volatile, investing in dividend stocks can help you keep getting returns on your investment while you await a recovery to offer wealth growth through capital gains.
While high-yielding dividend stocks seem incredibly enticing, not every stock offering higher-than-usual payouts can be a good long-term investment. Focusing on the stock of high-quality businesses with a history of dividend growth and reliable payouts is a better way to make dividend investing work in your favour over the long run.
Enbridge (TSX:ENB) is a stock that you can consider for this purpose. As of this writing, it trades for $43.57 per share, offering a juicy 8.15% dividend yield. While it has a reputation for dividend growth, it is crucial to take a closer look at the company before adding its shares to your portfolio.
Is it a fundamentally strong business?
The 8.15% dividend yield immediately seems too enticing to ignore at first glance. If you are an income-seeking investors, such high-yielding dividends might look too attractive to pass up. However, its yield is significantly higher than what you might expect a top dividend stock to offer. Businesses with such high-yielding payouts need to be fundamentally solid to sustain payouts.
Enbridge is a $92.87 billion market capitalization giant in the North American energy industry. Headquartered in Calgary, it owns and operates pipelines throughout Canada and the U.S., transporting hydrocarbon products throughout the region. In a bid to retain a strong position in a greener future for the energy industry, Enbridge has also started generating renewable energy.
In the near to medium term, Enbridge stock’s extensive pipeline network is well positioned to generate substantial cash flows for the company. The company has taken proactive steps to retain a strong position in the industry with further expansions to its network in recent years. It has also realigned contracts to extend terms, lower tariffs, and enjoy a greater degree of protection for its returns.
Foolish takeaway
Enbridge stock is one of the top dividend stocks on the TSX. It has raised its dividends annually for the last 28 years, growing its payouts by at least 5% in the last 15 years. It has strong fundamentals and growth prospects. However, the changing industry dynamics do place a question mark in terms of delivering similar growth in the long run.
If not for the next few decades, Enbridge stock does seem like an enticing asset to buy and hold for now. Its excellent track record has made Enbridge stock a mainstay in many self-directed investment portfolios.
Investing in its shares at current levels can let you lock in high-yielding dividends to keep lining your account balance with extra cash. When markets recover, a rise in its share prices can also benefit you through capital gains. However, I would advise caution and checking your risk tolerance when allocating investment capital to the stock.
