Investors often look at dividend payout ratios based on earnings, but this approach doesn’t work for capital-intensive companies. In sectors such as the telecom sector, accounting results are strongly distorted by depreciation, while it is precisely the cash flow that pays off.
A good example is B.C (TSX:BCE). Earlier this year I flagged the unusually high payout ratio based on distributable cash flow and suggested that management would likely cut the payout immediately, which ultimately happened. We are now seeing similar warning signs TELUSwhich has halted dividend increases as analysts question how sustainable the payout really is given rising debt levels.
The headwind is structural. Slower population growth limits subscriber growth, pricing power is limited by regulations and competition, and heavy debt means more and more of its cash flow goes to interest payments rather than to shareholders.
If you want a dividend stock in the critical infrastructure sector that prioritizes sustainability rather than stretching the balance sheet, there is one clear alternative I would choose: Enbridge (TSX:ENB).
What is Enbridge?
Enbridge is one of the most important parts of North America’s energy infrastructure. The company operates crude oil and liquids pipelines, natural gas transmission networks, gas distribution companies and renewable energy assets. The pipeline system alone carries roughly 30% of the crude oil produced in North America, making it a true toll company.
What sets Enbridge apart is the way it is paid. Most assets operate under long-term contracts, often with terms of 20 years or more, with volume commitments and inflation-linked escalators. That means Enbridge is largely insulated from short-term commodity price fluctuations. Whether oil costs $60 or $90, the pipelines still earn a fee for moving molecules from point A to point B.
This contract structure creates a highly predictable cash flow, which gives management confidence to invest, borrow at reasonable rates and return capital to shareholders. It is the exact opposite of the telecom model, where price pressure, capital intensity and leverage all work against the safety of dividends.
Why Enbridge’s dividend seems safer
Enbridge’s management team is very explicit about dividend discipline. The company targets a dividend payout ratio of 60% to 70% of distributable cash flow. That margin leaves room for reinvestment, debt reduction and unexpected shocks.
Compare that to BCE, which paid out more than 100% of its distributable cash flow before the cut. That gap had to be filled with loans, which is never sustainable in an environment with higher interest rates.
The results speak for themselves. Enbridge has been paying dividends for more than 70 years and has increased its dividend for about 30 years in a row. Over the past thirty years, the dividend has grown at an annual rate of about 9%, easily outpacing inflation.
What’s next for Enbridge?
Management guidance gives investors a clear step-by-step plan. Looking ahead, Enbridge expects adjusted EBITDA to grow approximately 8% annually, with distributable cash flow per share growing approximately 3%. That supports continued dividend increases in the low single digits.
Enbridge currently pays a quarterly dividend of $0.9425 per share. The most recent record date was November 14, with payment on December 1, so new investors will have to wait for the next cycle. Based on the current share price as of December 18, the dividend translates into an annualized return of approximately 6%.
That return is well covered, backed by contracted cash flows and supported by a business model that doesn’t rely on aggressive subscriber growth or financial engineering. In a market where several high-profile dividend stocks have stumbled, that consistency matters.
If your goal is reliable income and not chasing returns at all costs, I personally think Enbridge offers a much stronger foundation than the struggling Canadian telecom stocks.
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