Investing for dividend income is often a test of patience. It can take years for a portfolio of dividend stocks to compound into the avalanche of income that can pay your bills, a dream for many people.
Therefore, investors should typically select dividend stocks based on their long-term prospects. Be warned: Building that dividend income isn't about chasing the highest yields. Those stocks are often yield traps, troubled companies that wind up doing more harm than good to your portfolio.
Enbridge (ENB +1.13%) stands out in the energy space. The Canadian company is a leader in North America's energy picture, and the stock offers a juicy 5.6% dividend yield.
Can buying the stock today pay dividends for a lifetime? Here is what you need to know.
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Can investors trust Enbridge's high dividend yield?
Right off the bat, investors can see that Enbridge's dividend is no fluke. The company has paid and raised its dividend for 28 consecutive years. Financially speaking, management maintains a dividend payout ratio of about 60% to 70% of the company's distributable cash flow at any given time. That helps protect the dividend in case the business hits a rough patch.
That doesn't happen very often. Enbridge is a very consistent company because its two primary businesses, oil and gas pipelines and gas utilities, are highly regulated and make money based on consumption volumes. When was the last time society simply stopped using energy? It doesn't happen.
Enbridge invests in its infrastructure and negotiates price increases with customers and regulators. Management will also make the occasional acquisition. But overall, Enbridge has shown itself to be a slow and steady grower for years. That not only supports the dividend, but also bumps it higher over time.
NYSE: ENB
Key Data Points
The stock can continue to deliver the goods
Enbridge's headquarters are in Calgary, Alberta, Canada. It sits among the region's resource-rich oil sands, and its pipelines are key to transporting those resources to export hubs throughout the continent. That business should continue to thrive, as experts anticipate global energy consumption increasing by 8% annually through 2040.
The company also has a growing portfolio of renewable energy projects, so Enbridge isn't a pure play on fossil fuels. Its diversified nature should cement the company as a key cog in the energy landscape for the foreseeable future. The data center boom to support artificial intelligence could also drive energy demand well into the future.
So, to answer the question, yes. Despite its high dividend yield, Enbridge is a high-quality dividend stock that offers investors significant dividend income from day one, with the added growth potential of steady low- to mid-single-digit growth that could turn into an avalanche of passive income for those who hold the stock long enough.
