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A Dividend Powerhouse I’d Choose Over Suncor Immediately

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Written by Adam Othman at The Motley Fool Canada

The energy sector in Canada is finally experiencing a relatively stagnant phase after a two-month bull market. However, there is a significant difference between stagnation and going bearish; hence, we haven’t seen many energy stocks become heavily discounted, or their yields go up at an impressive rate.

As a result, strong dividend picks like Suncor (TSX:SU), while still attractive, are not among the top choices in the sector right now. While there are multiple dividend powerhouses in the energy sector, Enbridge (TSX:ENB) stands out for a number of reasons.

Suncor vs. Enbridge

One of the main reasons Suncor lost the confidence of its investors was its brutal dividend cut during the pandemic. The company broke its long-term dividend growth streak and lost the title of an aristocrat. However, the dividend cut reflected the reality of the market and its impact on an integrated energy company like Suncor.

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However, once the sector recovered and went bullish, the company started growing its payouts again. Its current payouts are much higher than they were before the dividend cut.

However, Enbridge retains an edge over Suncor as a dividend stock. The pipeline company had a much more resilient business model, allowing it to maintain and grow its payouts during the pandemic. The company maintained its long-term record of dividend growth, retaining its title of an aristocrat, and is currently offering its investors a mouthwatering yield of 7.2%.

Why is Enbridge a top dividend choice?

Apart from its stellar dividend history and solid yield, Enbridge is a top dividend choice because of its business model and prospects. Enbridge’s business mix is unique, even for a pipeline company. A significant portion of its revenues comes from the pipeline business, which is much safer and more stable compared to both upstream and downstream energy businesses, leading to safer revenues.

However, another sizable portion of the revenues is from Enbridge’s natural gas utility business, which is even safer and more rock solid as a revenue source. So, collectively, a hefty portion of Enbridge’s revenue comes from reliable/safe sources, making its dividends more reliable in turn.

Enbridge’s future looks promising as well. The company is focusing on both natural gas and renewable energy and even though oil transportation is a large part of its business right now, it may make up a relatively small segment of its operational mix in the coming years.

Foolish takeaway

Even though plenty of energy stocks in Canada have solid dividend histories and are offering healthy yields, Enbridge is in a class of its own. It’s also attractive right now thanks to the modest discount it’s trading at, which has beefed up its yield and knocked its valuation down to a more reasonable level.

The post A Dividend Powerhouse I’d Choose Over Suncor Immediately appeared first on The Motley Fool Canada.

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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

2024