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3 Unknown but Amazing Dividend Stocks

By Matthew DiLallo - Jun 28, 2020 at 11:05AM

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These Canadian energy companies have a long history of richly rewarding dividend investors.

Canada is quietly the world's fourth largest oil producer. However, despite being a sizable market participant, it's in the shadows of the big three -- U.S., Saudi Arabia, and Russia -- mainly because nearly all of its exports flow to its neighbor to the south. That means many investors overlook its oil patch. 

That's causing them to miss out on some excellent dividend stocks. Three of those standouts are Enbridge (ENB 1.06%)TC Energy (TRP 1.77%), and Canadian Natural Resources (CNQ 2.22%). They pay higher yields and have also increased them like clockwork for at least the past two decades.

A person opening up a box of treasure.

Image source: Getty Images.

Dividend aristocracy

Enbridge has treated its investors like royalty over the years. Earlier this year, the company delivered its 25th consecutive annual dividend increase, which put it in an elite class. Those haven't been token raises either, as the company has grown its payout by an 11% compound annual rate during that timeframe, including boosting it by 9.8% this year. All those raises have added up, as the company currently pays an eye-popping dividend yield of 7.4%.

That upward trend appears as if it will continue in the coming years. Several factors drive that view. For starters, the pipeline giant generates very stable cash flow backed by long-term, fee-based contracts with financially strong customers. Meanwhile, it pays out only 65% of that money to support its high-yielding dividend, a conservative level for a pipeline company. On top of that, it has an investment-grade credit rating backed by leverage metrics at the low-end of its target range. That strong financial profile provides it with the flexibility to continue investing in expansions projects. Enbridge estimates it has the financial capacity to invest in enough projects to grow its cash flow by 5% to 7% per year, which should support similar annual dividend increases.

Plenty of fuel to keep growing the payout

TC Energy delivered its 20th straight annual dividend increase this year, which is an excellent track record for a company in the volatile energy sector. Like Enbridge, TC Energy has also grown its payout at a sizable compound annual rate. From 2000 through 2015, it increased the dividend at a 7% yearly pace. It has since hit the accelerator and boosted it between 8% to 10% per year. 

The pipeline company anticipates giving investors one more raise in that latter range next year before shifting to a more moderate pace of 5% to 7% per year post-2021. Several factors fuel the company's view that it can keep growing its 5.2%-yielding dividend. First of all, it too generates lots of stable cash flow backed by long-term, fee-based contracts. Meanwhile, it has an even more conservative payout ratio at 40% of its cash flow and an even higher credit rating than Enbridge. It has loads of financial flexibility to continue expanding its energy infrastructure empire.

A rock amid the volatility

Canadian Natural Resources is Canada's largest oil and gas producer. Despite that direct exposure to commodity prices, -- which has claimed many oil patch dividends in recent years --- Canadian Natural Resources has been an exceptional income stock over the past two decades. Overall, the company has increased its payout for 20 straight years, growing it at an impressive 20% compound annual rate, including giving investors a 13% increase this year.

Canadian Natural Resources' current dividend yields an attractive 7% and is on solid ground despite all the turmoil in the oil market. That's because the company has an ultra-low breakeven level. It can generate enough cash on oil prices in the $30 to $31 per barrel range to maintain its current production rate and pay its dividend, which is the lowest breakeven level in its peer group. With oil currently around $40 a barrel, it's generating free cash. Meanwhile, Canadian Natural Resources compliments its low-cost operations with a solid investment-grade balance sheet. The company should have no problem maintaining its payout during the sector's current rough patch, and it even has some wiggle room to continue increasing it without needing market conditions to improve.

Energize your income portfolio

Investors tend to overlook companies from Canada, which can cause them to miss some excellent opportunities. That certainly seems to be the case with this trio of energy stocks. All three have a long history of growing their dividends. Add in their well-above-average yields and rock-solid financials, and these Canadian energy stocks are worth considering.

Matthew DiLallo owns shares of Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.

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Stocks Mentioned

TC Energy Corporation Stock Quote
TC Energy Corporation
TRP
$49.54 (1.77%) $0.86
Enbridge Inc. Stock Quote
Enbridge Inc.
ENB
$43.88 (1.06%) $0.46
Canadian Natural Resources Limited Stock Quote
Canadian Natural Resources Limited
CNQ
$53.86 (2.22%) $1.17

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