Telus (TSX: T) and BCE (TSX: BCE) were considered Canada’s top dividend stocks. These telecom leaders had a history of increasing their dividends year after year, making them popular choices for long-term income investors. However, their reputations as dependable dividend stocks have suffered.
Both telecom companies have had to cut their dividends as financial pressures mounted. Telus first put its dividend growth plans on hold, then slashed its quarterly payout by roughly 55%. BCE also made a major cut, reducing its annualized dividend from $3.99 per share to $1.75 per share last year.
Several factors have contributed to their struggles. Fierce competition, aggressive pricing, slower population growth, regulatory pressures, and high debt have all weighed on their financial performance. These challenges have made it harder for both companies to grow profits while maintaining their previous dividend levels.
Although Telus and BCE are now focused on reducing debt and their reduced payouts appear sustainable, I’d rather invest in Enbridge (TSX: ENB). Its dividend yield of around 5.8% is attractive. Moreover, its solid dividend-growth history and resilient energy-infrastructure business strengthen the investment case. Enbridge is also well positioned to keep growing its dividend.
Enbridge’s dividend growth outlook remains strong
Enbridge stands out as an attractive option for investors seeking a reliable and growing passive income stream. The energy infrastructure company’s payouts are supported by its resilient business model and growing cash flow. It has paid dividends for over seven decades and increased its annual payout every year since 1995.
Enbridge benefits from a highly diversified revenue base. It operates in liquid pipelines, natural gas infrastructure, gas distribution utilities, and renewable energy. This business mix reduces reliance on any single segment while allowing the company to capitalize on long-term energy demand.
Predictable revenue streams and a low-risk earnings base support Enbridge’s payouts. Nearly all of Enbridge’s EBITDA comes from regulated businesses or long-term take-or-pay contracts. These arrangements help protect cash flow from commodity price fluctuations and broader energy market volatility.
Enbridge’s growing earnings and distributable cash flow (DCF) per share should support future dividend increases. Moreover, its payout ratio of 60% to 70% of DCF is sustainable in the long term.
Over the medium term, Enbridge expects annual growth of approximately 5% in adjusted EBITDA, EPS, and DCF per share. Growing earnings and DCF per share will support higher payouts. In addition, Enbridge’s $39 billion secured capital projects augur well for future growth. Supported largely by regulatory frameworks and long-term contracts, these investments should enhance earnings and strengthen future cash generation.
Enbridge is also likely to benefit from rising energy demand. Overall, its resilient business model, ability to grow earnings and DCF, and solid growth opportunities position the company to keep paying and growing its dividend.
The bottom line
Enbridge appears to be a compelling alternative to Telus and BCE for income-focused investors. It has a solid history of uninterrupted dividend growth and offers an attractive 5.8% yield backed by diversified operations and predictable cash flows. Further, Enbridge’s multibillion-dollar growth projects and resilient earnings base provide a solid foundation for sustaining and increasing future dividend payments.