Enbridge Stock? No Thanks. Buy This Top Dividend Stock Instead

If I ever thought of any dividend stock, it was first of all Enbridge (TSX:ENB). This dividend darling has long been a source of income for many Canadian investors. With dividends typically in the 5-7% range, it certainly looks juicy.

This is also true today, with a dividend yield of 7.08%. However, while this is higher than the five-year average of 6.88%, the payout is also quite high at 135%. So let’s discuss why investors might want to skip Enbridge and look at other stocks instead.

Cons of Enbridge stock

While Enbridge has historically been a strong dividend stock, there are several reasons why dividend investors might want to reconsider their positions. First, the company’s high debt levels are a concern. Enbridge’s aggressive growth strategy, marked by significant capital expenditures and acquisitions, has led to a significant debt load. Rating agencies have periodically flagged this debt as a potential risk that could impact investor confidence.

Second, regulatory and environmental challenges pose significant risks to Enbridge’s business. The company has faced numerous legal and regulatory hurdles, particularly with pipeline projects such as Line 3 and Line 5. Delays, cost overruns and legal battles related to these projects could drain resources and reduce cash flow available for dividends.

Finally, the competitive landscape and market conditions in the energy sector are changing unfavorably for Enbridge stock. The transition to renewable energy sources is accelerating, and traditional oil and gas companies are facing increasing competition from cleaner energy alternatives. While Enbridge has made efforts to diversify into renewable energy, the bulk of its revenues still come from its traditional pipeline operations.

Add to that the fact that Enbridge’s stock price has rarely exceeded $50 per share over the past five years (more likely lower), and that means it’s not a promising investment, regardless of whether it pays a dividend.

Where to look

It’s clear where investors should be looking: renewable energy. With the global push for sustainability and reduced carbon footprints, renewable energy companies are poised for significant growth. Canada, with its vast natural resources, is well-positioned to lead this transformation.

Another compelling aspect of the renewable energy sector is its resilience and stability. Unlike traditional energy companies, which are heavily impacted by volatile oil prices, renewable energy companies benefit from long-term contracts and government incentives, providing a more predictable revenue stream. This stability translates into more reliable dividend payments.

In addition, the Canadian government’s commitment to achieving net zero emissions by 2050 and the introduction of various green energy incentives create a favorable regulatory environment for renewable energy companies. This commitment ensures a steady flow of investment and support for the sector. For dividend investors, this not only means a growing market, but also a supportive policy landscape that increases the prospects for sustainable dividend growth.

Stocks worth buying now

Dividend investors should therefore take note The Power of Capital (TSX:CPX) on the TSX for its strong financial performance and commitment to dividend growth. Over the past several years, CPX has consistently delivered solid financial results, driven by a diversified portfolio of energy assets. The company has a mix of natural gas, coal and renewable energy projects, which provides a stable revenue stream.

In recent earnings reports, Capital Power has shown solid earnings growth and a strong balance sheet, which has allowed it to maintain and increase its dividend payouts. For example, the company announced a 7% increase in its annual dividend for 2023, marking the eighth consecutive year of dividend growth.

Moreover, Capital Power’s diversified asset base across multiple jurisdictions also mitigates regional market risks. With a dividend yield that is consistently attractive relative to its peers and the broader market, Capital Power offers a compelling case for dividend investors seeking both income and growth.

With a dividend yield of 6.11%, CPX is no slouch. Meanwhile, the stock is up 7% over the past year and its payout ratio is an incredibly strong 46%. The combination of financial strength, strategic growth in renewables, and strong risk management make CPX a promising investment for those focused on dividends.