If you ask a Canadian what the best dividend stock is for pension income, Enbridge (TSX: ENB) would be a common answer. This share has been a favorite of investors for decades because of the economic resilience and a strong history of dividend. Energie -infrastructure is a sustainable way to earn dividends from tolls collected for sending oil and gas and facilitating the largest oil export from Canada to the United States.
Enbridge is an excellent investment
Enbridge has market leadership and transfers 30% of the crude oil that is produced in North America and almost 20% of the natural gas used in the United States. Last year it acquired two American gas facilities to become the largest natural gas use of North America on volume. The company has various income flows that continue to flow in cash in every economic condition.
This certainty of stable cash flow comes from the low risk model of Enbridge.
However, Enbridge increased its fault last year to finance the acquisition of gas use. This has raised its lever ratio to 4.7, which lies within the target range of 4.5 to 5.0.
The company also delayed its dividend growth from 10% in 2020 to 3% in 2021, because it focused on accelerating the construction of the gas pipeline to tap the export market of Noord -Merika (LNG) in North America.
But…
The pipeline infrastructure provides stability, but reduces flexibility. After a changing global supply chain, countries want to diversify their trading partners. For years, Canada has been supplying more than 99% of its oil to the United States and is now confronted with a rate of 10%. If Canada decides to shift its supply chain, the pipeline infrastructure can cost billions of dollars, reducing the flexibility.
Enbridge has high capital expenditure. It spends 8% of its income and pays interest to the debt. This debt further reduces its dividend growth potential. From 2027, the company expects to grow its dividend by 5%, which is above inflation.
Enbridge is moderate shares with a low risk, moderate dividend growth, which is excellent. But what if you can get a higher dividend growth of 10-20% with a comparable dividend yield, with slightly higher risk?
I prefer this stock
The current macro -economic environment has taught us that 5% is not sufficient. You need a dividend stock that can grow your passive income. Such growth needs financial flexibility. Canadian natural resources (TSX: CNQ) has one of the largest oil tillage reserves, which has lower maintenance costs compared to shale oil. The slowly exhausting, low -maintenance reserves give Canadian natural resources a cost benefit and help make it profit, even at US $ 50 West Texas Intermediate per barrel.
In contrast to Enbridge, CNQ has volatile cash flows due to the exposure to oil and gas prices. However, it has a diversified product mix of synthetic crude oil, which sells at a higher price, and LNG.
I prefer CNQ because
- It has a requirement of low capital investments. It requires loans to acquire new oil reserves. These acquisitions are immediately affected, so that the debts pay back faster.
- CNQ experiences windfall profits when the WTI price rises and passes this profit to investors through special dividends.
- It has grown its dividends by 10-20% in the last 10 years, even after the oil crisis 2014 permanently reduced the WTI-Ruwe Price of US $ 100 to US $ 65/VAT.
- The last 20-year dividend growth was driven by share purchasing and increased oil production.
CNQ wants to reduce its net debt to $ 16.7 billion in 2025 and to keep it under $ 12 billion. Therefore, when the net debt is above the target level, it leads more free cash flow to debt repayment to maintain financial flexibility.
Enbridge vs. Canadian Natural Resources
There is a small difference in the dividend yield of the two shares. The yield of Enbridge is 5.65%, while CNQs are 5.59%. However, the latter offers a dividend growth of 10% compared to the 3% of the first. Moreover, Enbridge has clarified that it could feel the heat if the rates are extended. That is no problem with CNQ, because it can sell its oil on the open market.
In summary, Enbridge is still an excellent stock, but the changing energy environment needs flexibility, which means that Canadian natural resources are a better choice for risk -people.
#Enbridge #excellent #prefer #stock