Enbridge ( ENB -2.00% ) and ExxonMobil ( XOM 0.56% ) have been elite dividend stocks over the years. Both entered 2020 as Dividend Aristocrats, as each had increased their payout for more than 25 straight years. Enbridge achieved that milestone this year, while Exxon's streak was up to 38 years.
However, Exxon's dividend growth engine ran out of gas this year as it failed to give its investors a raise due to all the turbulence in the oil market. On the other hand, Enbridge kept its streak alive, recently declaring its 26th consecutive annual increase. That upward trending dividend seems likely to continue given what the Canadian pipeline giant sees ahead.
Resilience amid the storm
Enbridge's operations have proven to be highly durable this year. The Canadian energy infrastructure giant expects to hit the midpoint of its original CA$4.50 to CA$4.80 ($3.51 to $3.74) per share guidance range for distributable cash flow despite all the turbulence in the oil market this year. That's mainly due to its focus on operating stable pipeline assets backed by long-term contracts. The company is generating enough cash to cover its dividend with room to spare, giving it a significant portion of the funding needed for its expansion projects. Contrast that with Exxon, which outspent cash flow by a wide margin this year due to low oil prices. This caused its total debt to balloon from $47.1 billion in the third quarter of 2019 to $68.8 billion at the end of this year's third quarter.
Meanwhile, Enbridge expects its cash flow to improve next year to a range of CA$4.70 to CA$5.00 ($3.66 to $3.90) per share as additional expansion projects come online. Enbridge had the confidence to increase its dividend by another 3%. That brings its annualized payout to CA$3.34 ($2.60) per share. With that payment still comfortably below its cash flow, Enbridge has the flexibility to continue financing expansion projects. Again, contrast that with Exxon, which is on track to outspend its cash flow by another $8 billion next year at current oil prices.
More dividend growth seems likely
Enbridge currently expects to grow its cash flow per share at a 5% to 7% annual rate over the long term. Fueling that outlook is its strong backlog of capital projects, which currently stands at CA$16 billion ($12.5 billion) and includes a mix of new pipelines and offshore wind farms. As the company completes those projects, they should add an incremental CA$2 billion ($1.6 billion) of annual earnings. While Exxon also has a sizable expansion spending plan, it recently slashed $10 billion per year out of its capex program due to low oil prices. As a result, it needs much higher oil prices for its revamped program to grow its cash flow.
Meanwhile, Enbridge anticipates that it can continue growing its dividend. The company's CEO stated in a recent press release that "we'll continue to ratably grow the dividend up to the level of average annual DCF per share growth, while maintaining our dividend policy payout of 60%-70% of distributable cash flow." With its 2021 payout level projected to be 69% at the midpoint of its guidance range, it has room to grow the dividend in the future, given its expectation that its cash flow will expand at a 5% to 7% annual pace. While Exxon plans to protect its dividend, it might have no choice but to reduce its payout if oil prices take another tumble.
A better choice for dividend investors
Exxon and Enbridge offer investors enticing dividend yields. Exxon's payout is up to 8.2%, while Enbridge's is at 7.3%. However, Enbridge offers a better dividend since it will likely continue growing while Exxon's will, at best, remain flat, with a high risk of a reduction. Dividend investors should take a closer look at Enbridge since its growing payout could give it the fuel to outperform ExxonMobil in the coming years.