Pullbacks in top dividend growth stocks offer the opportunity to earn better returns and position the portfolio for gains in a recovery.
Enbridge
Enbridge (TSX:ENB) is a major player in the North American energy infrastructure industry with a current market capitalization of nearly $135 billion. The stock is down about 10% from a 12-month high, giving income investors who missed last summer’s rally a chance to get in on a pullback.
Enbridge is best known for its oil pipeline network that carries about a third of the oil produced in Canada and the United States. The recent weakness in stocks could be attributed to concerns that Venezuelan oil will replace the Canadian oil currently sent to refineries on the Gulf Coast in the United States.
The US Venezuelan Offensive
The US plans to invest in the Venezuelan oil sector to boost production. Estimates put the capital expenditure required at up to $100 billion. Oil companies will need guarantees that their assets will not be privatized after the investments have been made. The oil price should also be high enough to generate the desired return. Some impact from higher Venezuelan supply is expected, but any meaningful replacement of volumes from Canada to US refineries is likely to take a long time.
As such, any feared drop in oil volumes flowing along Enbridge’s pipelines from Canada to the United States is likely exaggerated. Enbridge recently announced a $1.8 billion project to expand its Mainline capacity to transport more oil to U.S. refineries in the U.S. Midwest and the Gulf Coast. Investors will want to watch the upcoming quarterly reports to see if the expansion plan remains on track.
Enbridge has a total of $35 billion in secured capital projects underway that will help drive cash flow growth in the coming years. This should support steady dividend increases. The board has increased the dividend each time over the past thirty years. Investors who buy ENB stock at current levels could get a dividend yield of 6.2%.
Fortis
Fortis (TSX:FTS) is trading near $72 at the time of writing, down from a 12-month high around $74 per share. The stock is widely seen as a solid defensive pick for income investors who might be concerned about economic headwinds in Canada and the United States.
Fortis owns utilities, including power generation facilities, natural gas distribution companies and electricity transmission grids. Turnover is mainly rate regulated. This means that cash flow is usually predictable and reliable.
Fortis is working on a $28.8 billion capital program that will increase its interest base at a compound annual rate of approximately 7% over five years. This should support the planned annual dividend growth of 4% to 6% through 2029. Fortis has increased its dividend in every last 52 years.
The bottom line
Enbridge and Fortis pay attractive dividends that are expected to continue to rise. If you have some money to put to work in a portfolio focused on dividend income, these stocks deserve to be on your radar.
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