While Enbridge (TSX:ENB) has its merits, including a strong dividend yield and a robust infrastructure network, these potential risks and challenges might prompt some investors to look for other dividend-paying stocks with more stable and sustainable prospects.
In fact, if you’re looking for dividends, there is another stock that offers both returns and dividends. And it’s a dividend giant I’d consider over Enbridge stock any day of the week.
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Why not Enbridge stock?
First, why should investors perhaps steer clear of Enbridge stock? The global shift towards renewable energy and away from fossil fuels could impact Enbridge’s long-term growth prospects. As the world moves towards cleaner energy sources, traditional oil and gas infrastructure companies may face declining demand and revenues.
We’ve already been seeing some of the growth slow as well. Enbridge carries a significant amount of debt. While the company has managed this debt effectively in the past, high debt levels can be risky, especially in a rising interest rate environment. As of the most recent financial statements, Enbridge’s debt-to-equity ratio is approximately 1.3, indicating that the company has more debt than equity, which can be risky, especially if interest rates remain high.
Furthermore, Enbridge has faced numerous regulatory hurdles and legal challenges. For instance, the Line 3 Replacement Project faced significant delays and legal battles before it was completed. These regulatory and legal issues can affect project timelines and costs.
As for the dividend itself, Enbridge’s payout ratio, which measures the proportion of earnings paid out as dividends, is around 135% as of writing or higher in some years. This high payout ratio indicates that Enbridge is paying out nearly all of its earnings as dividends, leaving little room for reinvestment or cushion for downturns. So, despite a 7.59% yield, what should we do instead?
Infrastructure
When it comes to investing, infrastructure assets provide essential services, such as transportation, utilities, and data connectivity, which are critical to the functioning of economies and societies. This makes the revenue streams relatively resilient to economic cycles. Which is why Brookfield Infrastructure Partners (TSX:BIP.UN) is a solid option.
BIP stock owns and operates a diversified portfolio of high-quality infrastructure assets across North and South America, Europe, and Asia-Pacific. The company invests in utilities, transport, energy, and data infrastructure. Many of BIP’s assets generate revenue through long-term contracts or regulated frameworks, ensuring stable and predictable cash flows. Plus, many are also inflation resistant.
BIP stock also has a proven track record of acquiring and integrating high-quality infrastructure assets. In addition to acquisitions, it invests in organic growth projects, including expansions and improvements to existing assets, which can drive future earnings and cash flow growth.
As for the dividend, currently at 5.76%, the company has consistently increased its dividends, with an average annual growth rate of 6-9% over the past decade. The latest annual report highlights a target distribution growth rate of 5-9% per annum — all while seeing shares rise by 31% from 52-week lows. Compare that to Enbridge stock and its 14% rise.
Bottom line
While Enbridge stock has long been a dividend giant, I would argue it is no longer. Instead, investors looking for a reliable dividend giant on the TSX should consider Brookfield Infrastructure Partners. It offers a compelling investment case due to its diversified and high-quality asset base, stable and growing cash flows, attractive dividend yield, growth opportunities, and attractive valuation. These factors make BIP stock an appealing choice for investors seeking a reliable income stream and long-term growth potential.
