Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since 1995.

| More on:
Paper Canadian currency of various denominations

Source: Getty Images

Investing in dividend-growth stocks is a proven strategy for beating the broader markets over time. Typically, a company that increases its dividends each year enjoys a widening base of earnings and cash flows, which also translates into share-price appreciation.

One such TSX dividend stock that has already created massive wealth for shareholders is Enbridge (TSX:ENB). In the last 20 years, the TSX energy stock has returned 1,260% to shareholders in the last 29 years. However, after adjusting for dividend reinvestments, cumulative returns are much higher at 4,830%.

Created with Highcharts 11.4.3Enbridge PriceZoom1M3M6MYTD1Y5Y10YALL17 Jul 201416 Jul 2024Zoom ▾201520162017201820192020202120222023202420162016201820182020202020222022202420240www.fool.ca

Let’s see how Enbridge can help you earn $1,000 in tax-free passive income in 10 years with an investment of less than $8,000 today.

An overview of Enbridge stock

Value at $105 billion by market cap, Enbridge is a diversified energy infrastructure company and among the largest companies in Canada. It has four primary business segments:

  • Liquid pipelines: The largest pipeline system in North America, which transports 30% of the crude oil produced on the continent.
  • Gas transmission and midstream: It delivers 20% of the natural gas consumed in the U.S.
  • Gas distribution and storage: Once the acquisitions from Dominion Energy are completed, Enbridge will be the largest natural gas utility in North America.
  • Renewable power: With a capacity of 5.3 gigawatts, Enbridge supplies clean energy to 5.7 million people.

Enbridge is a diversified giant

Last year, Enbridge announced plans to acquire three U.S. gas utilities from Dominion Energy for $19 billion. The deal should power its existing infrastructure, after which its liquids pipelines business will account for 50% of EBITDA (earnings before interest, tax, depreciation, and amortization), followed by gas transmission at 25%, gas distribution at 22%, and renewable energy at 3%.

Enbridge has a low-risk business model. The majority of its cash flows are tied to long-term inflation-linked contracts, shielding it from fluctuations in commodity prices. Its stable and predictable stream of cash flows has allowed the TSX giant to increase dividends every year for 29 consecutive years. In the last five years, it has returned $34 billion to shareholders via dividends and expects this number to increase to $40 billion in the next five years.

Enbridge aims to maintain a payout ratio of less than 70%, which allows it to target accretive acquisitions, lower debt, and raise dividends further.

In the last 20 years, Enbridge has returned 11% annually to shareholders, higher than its midstream peers, which have an annual return of 7.7% in this period.

Steady dividend growth

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Enbridge$49.22152$0.915$139Quarterly

In the last 29 years, Enbridge has increased its dividends by 10% annually, which is exceptional for an oil and gas company. If it can raise these payouts by 7% each year, its dividends should double in the next 10 years.

An investment of $7,500 in ENB stock will help you buy 152 company shares. Given its annual dividend of $3.66 per share, you will earn $556 in dividends in the next 12 months. For the dividend payout to increase to $1,000 in the next 10 years, Enbridge will have to raise dividends by 6.04% annually.

Should you invest $1,000 in Dominion Resources, Inc. right now?

Before you buy stock in Dominion Resources, Inc., 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 Dominion Resources, Inc. 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 Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

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

Dividend Stocks

This Canadian Monthly Dividend Stock Pays a Stunning 9% Yield

Pro REIT is a Canada-based real estate company that offers you a forward yield of 9% in 2025. Is this…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How I’d Invest $7,000 in My TFSA for $660 in Tax-Free Annual Income

Canadians looking for ways to make the most of the new TFSA contribution room should consider investing in these two…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

This Dividend King Paying 7.5% in Monthly Income Is a Must-Have

This high-yield TSX stock might not be a textbook Dividend King, but its reliable monthly payouts and improving financials make…

Read more »

path road success business
Dividend Stocks

How to Invest $50,000 of Tax-Free Cash as Canada-US Trade Uncertainty Escalates

Few Canadian stocks are as easy a choice as this one, making it perfect during volatile periods.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Generate $200 in Monthly Income With a $7,000 Investment

Want to establish $200 in monthly income (or even more?) Here's an easy way to start today that will provide…

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

Got $25,000? Turn it Into $250,000 in a TFSA as the Canadian Dollar Rises

Investing doesn't have to be risky or difficult, especially with this top stock.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Where Will Loblaw Be in 3 Years?

Loblaw (TSX:L) stock could be a stellar performer as tariffs and headwinds move in on Canada's economy.

Read more »

customer uses bank ATM
Dividend Stocks

Where Will National Bank Be in 5 Years?

National Bank of Canada (TSX:NA) stock still looks like a great deal at these levels.

Read more »