Enbridge (ENB 1.17%), with a $75 billion market cap, is one of the largest energy companies in North America. The company's generous dividend, which yields 7.2%  at the current share price, is an appealing starting point for investors looking for passive income. However, there are a number of other positives to consider here, as well.

1. The dividend

Obviously, dividend investors looking to develop generous streams of income from their portfolios will like Enbridge's 7.2% dividend yield. That's well above the S&P 500's average yield of around 1.6% or even the 4% or so yield of the average energy stock (using the Vanguard Energy Index ETF as a proxy). Investors get paid well to own this stock.

A happy person with money raining down around them.

Image source: Getty Images.

But there's more to the story here because Enbridge has increased its payouts annually for 28 consecutive years. That impressive streak proves that management believes strongly in returning value to investors in both good markets and bad ones. 

2. Ample coverage

The company targets a distributable cash flow payout ratio of between 60% and 70%. In 2022, the payout ratio was roughly 63%. That is comfortably within the target range and gives it ample room for adversity before there's any risk of a dividend cut.

3. Solid foundation

Also of note is the company's balance sheet, which is rated investment-grade by the major credit rating agencies. That suggests solid financial strength and ample ability to tap debt markets if the need arises. However, Enbridge also highlights that it has the capacity to allocate up to $3 billion in discretionary capital annually toward goals that will drive its growth and shareholder value. The list of options it lays out for that spending ranges from tuck-in acquisitions to debt reduction to stock buybacks. But in a worst-case scenario, it also provides an additional safety buffer for the dividend.

4. Diversified business

The dividend story is enticing, but there's also the company's actual operations to consider. Enbridge generates roughly 49% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) from oil pipelines, 47% from its natural gas pipelines and natural gas utility business, and 4% from clean energy. While it is still heavily reliant on hydrocarbon fuels, it has a fair amount of diversification in its mix, noting that natural gas is acting as a bridge toward a cleaner energy future. 

That said, the company's investment plans are weighted toward the cleaner options. For example, oil assets are only earmarked for around 20% of capital spending each year. Natural gas is targeted to get 60%. And clean energy is pegged at 20%, which is huge compared to the tiny 4% of EBITDA it contributes today.

5. Structure, good and bad

One additional reason to like Enbridge in the pipeline space is that it is a traditional company. Many of the highest-yielding pipeline stocks are master limited partnerships (MLP), which require investors to deal with K-1 forms. Also, MLPs aren't particularly great assets to hold in tax-advantaged retirement accounts. Enbridge avoids these issues and provides a generous dividend yield.

The downside is that Enbridge is a Canadian company, so U.S. investors have to pay Canadian taxes on their dividends. Those can be claimed back later, but it does mean a bit more work come tax season. Also, Enbridge's dividend is paid in Canadian dollars, so the actual payment U.S. investors collect will vary along with exchange rates. Right now, with the U.S. dollar relatively strong, investors may be pulling back from the stock because the exchange rate is pushing the actual dollar dividend received by U.S. investors lower. That should wash out over time, but it is something to keep in mind because it can have a short-term impact on the stock's price.

A solid all-around dividend play

No investment is perfect, with Enbridge's stock down about 20% over the past year. While that drop helped create the high yield opportunity here, there are reasons for the price decline. Exchange rates, noted above, are one likely concern, but so, too, is an increase in leverage over the past year. On that last front, the company remains investment grade despite the increase and leverage is well within the company's target range. All in, the negatives that Enbridge carries are fairly minor compared to the positives it offers. A big yield, a long track record of dividend growth, a strong balance sheet, and a diversified business all suggest that people looking for passive income would benefit from adding this pipeline giant to their portfolios.