Yahoo Finance Better Buy for Dividends? Royal Bank Stock or Enbridge Stock?
Written by Amy Legate-Wolfe at The Motley Fool Canada
Canadian investors remain focused on dividend stocks these days. And it’s clear why. Even though the stock market has been recovering, with November showing a huge rally, Canadians have been burned before. This is why being paid to own a stock sounds pretty great.
But how safe are those dividends? Let’s look at two of the best in the business, Royal Bank of Canada (TSX:RY) and Enbridge (TSX:ENB), to see which is the better dividend stock on the TSX today.
RBC stock
First, let’s look at RBC stock. The bank is the biggest of the Canadian Big Six banks by market capitalization, currently at $169.29 billion, as of writing. It offers a dividend yield of 4.55% as well, which is higher than its five-year average of 3.9% by quite a lot.
The dividend-payout ratio is also quite healthy at just 50.92%. That’s not so low that the company isn’t focused on providing cash for its dividend growth. It’s also, however, not too high. That would mean the company is putting too much cash into the dividend and not focusing on growth or paying down debt. This could mean RBC stock was about to slash the dividend, which doesn’t seem to be the case at all.
That’s likely thanks to being a Canadian bank in the first place. RBC stock is the biggest of the banks that take up 90% of the banking sector in Canada. This oligopoly means these banks are quite safe to invest in. We’ve witnessed this for hundreds of years, with the only banking crisis happening in 1837. Since then, it’s ridden through depressions, recessions, and, ah, yes, a pandemic.
RBC stock is looking quite healthy. It continues to seek expansion through acquisitions and partnerships. It has a lucrative wealth and commercial management business as well. And as the market recovers, it could be that we see this Dividend Aristocrat raise the dividend once more.
Enbridge stock
So, what about Enbridge stock? The pipeline company recently made headlines for increasing its dividend by 3%. But was that a smart move? The $100 billion company now has a dividend yield of 7.8% as of writing, with share prices actually lower than where they were even five years ago!
The company’s 7.8% dividend yield is certainly higher than its five-year average at the moment of 6.66% as well. However, here is the glaring, huge, massive issue with Enbridge stock. This company currently has a payout ratio of a whopping 234.83%! That means it is using practically everything it has to throw cash as its dividend without saving money for expansion.
And expansion is what the company must do if it hopes to survive. After all, the world is shifting away from pipeline companies. Enbridge stock needs to be able to adapt to the future of renewable energy. It’s already trying, but it’s going to take a massive investment. And that’s something Enbridge stock may not be able to afford.
At least, it can’t afford it if it hopes to keep paying the high dividend that investors know and love. Moreover, the company continues to focus on increasing that dividend by 7% to 8% each year, making it even more risky. Therefore, in my view, RBC stock certainly looks like the better dividend stock on the TSX today.
The post Better Buy for Dividends? Royal Bank Stock or Enbridge Stock? appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has positions in Royal Bank Of Canada. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.
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