Kalkine Media - The Canadian equity market has shown positive momentum this year, with the S&P/TSX Composite Index posting a 4.7% gain amid strong quarterly performances and signs of easing inflation. However, analysts are cautious about a potential global economic slowdown due to a prolonged period of high interest rates, compounded by ongoing geopolitical tensions.
In light of this uncertain outlook, investors are advised to consider adding quality dividend stocks to their portfolios to enhance stability and earn passive income. Dividend stocks have historically demonstrated resilience and outperformed broader equity markets. Let's evaluate two prominent TSX dividend stocks, Fortis (TSX:TSX:FTS) and Enbridge (TSX:TSX:ENB), to determine which presents a better investment opportunity at present.
Fortis (TSX:FTS)
Fortis is a Canadian utility company serving approximately 3.5 million customers across North America, delivering electricity and natural gas. Its low-risk utility business model, supported by regulated assets, makes its financials less susceptible to market volatility. Notably, Fortis has increased its dividends for 50 consecutive years, showcasing its commitment to shareholder returns. Over the past two decades, the company has delivered an average total shareholder return of 10.7%, outperforming the S&P/TSX Composite Index.
Looking ahead, Fortis plans to invest approximately $25 billion from 2022 to 2028, aiming to expand its rate base at an annualized rate of 6.3% to $49.4 billion by 2028. The company has allocated 80% of these investments to smaller projects and the remaining 20% to major capital projects. Fortis intends to fund these initiatives through a balanced approach, with 55% from operational cash flow, 11% from issuing additional shares, and 34% from debt. Management anticipates raising dividends by 4 to 6% annually through 2028, driven by these growth initiatives.
Despite its solid fundamentals, Fortis has faced pressure in recent months amid rising interest rates, with FTS stock declining approximately 13.5% from its 52-week high. Currently, it trades at 16.7 times analysts' projected earnings for the next four quarters, offering a forward dividend yield of 4.42%.
Enbridge (TSX:ENB):
Enbridge, a leading midstream energy company, transports oil and natural gas across North America. With approximately 98% of its adjusted EBITDA generated from long-term contracts, Enbridge's financials are relatively insulated from commodity price fluctuations. The company has a remarkable track record of dividend payments, having paid dividends uninterrupted for 69 years and increased dividends for the past 29 years at a compound annual growth rate (CAGR) of 10%. Enbridge currently offers an attractive forward yield of 7.50%.
Enbridge has expanded its asset base through strategic acquisitions, including the recent purchase of East Ohio Gas Company, and is set to complete two other natural gas utility asset acquisitions in the United States. Upon completion, Enbridge will become North America's largest natural gas utility company, serving approximately seven million customers. These acquisitions are expected to enhance the stability of Enbridge's financials.
Furthermore, Enbridge is focused on strengthening its financial position by reducing its debt-to-equity ratio to 4.1 and expects to put an additional $8 billion of assets into service by the end of next year. With healthy growth prospects and reasonable valuation, Enbridge appears well-positioned to sustain its dividend growth, trading at an NTM price-to-earnings multiple of 17.5%.
Both Fortis and Enbridge present compelling investment opportunities, backed by solid underlying businesses, consistent dividend growth records, and promising growth prospects. However, Enbridge stands out due to its higher yield and expansion initiatives, making it a more favorable choice for investors seeking income and growth potential.