Top Picks: 2 Dividend Stocks to Hold for the Long Term in a Bull Market

Top Picks: 2 Dividend Stocks to Hold for the Long Term in a Bull Market

If you’re a dividend investor like me, you value consistency across all market environments, bull or bear. A high yield backed by a reduced dividend is likely to result in lower income and loss of capital. No thanks! That’s why one of the first screens I use when researching a stock is a company’s dividend increase history. Next, I look at the companies behind the dividend. Enbridge (NYSE:ENB) And NextEra Energy (NYSE: NO) both look like stocks that dividend investors would want to own for the long term.

Enbridge is a slow and steady turtle

Canadian Enbridge is grouped with the midstream energy sector. This is an appropriate place for this, given that around 57% of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) comes from oil pipelines and 28% from gas pipelines. It’s actually one of the largest midstream companies in North America, with a portfolio of energy infrastructure that would be difficult, if not impossible, to replace or replicate.

THE pipelines and the other midstream assets it owns are largely fee-driven, resulting in fairly consistent cash flows regardless of changes in energy prices. But do the quick math: this side of the business accounts for 85% of EBITDA. The remainder comes from a regulated natural gas utility (12% of EBITDA) and renewable energy assets (the remainder). Regulated utilities are extremely boring and reliable cash flow generators, and the renewable energy assets owned by Enbridge are governed by long-term contracts.

Plenty of cash flow is coming in to cover the historically high dividend yield of 7.5%, noting that the distributable cash flow payout ratio sits comfortably in the middle of the company’s 60% to 70% target range. The dividend, for its part, has been increased every year for 29 consecutive years. There is no sign that the dividend streak is about to end.

That said, Enbridge is about to get even more boring and reliable with the planned purchase of three additional regulated natural gas utilities in 2024. This will shift its business mix to 50% oil pipelines, 25% gas pipelines, 22% gas utilities and 3% clean energy. Being a prudent and consistent dividend payer is clearly a high priority for management. Although the high yield likely represents the lion’s share of your total return, it should be a net positive for investors looking to maximize the income they generate from their portfolios.

Top Picks: 2 Dividend Stocks to Hold for the Long Term in a Bull Market

NEE Dividend Yield Chart

NextEra is a great option for dividend growth investors

Not everyone is looking for stocks with high returns; some prefer to own companies that reward income investors with rapid dividend growth. That’s exactly what you’ll get with NextEra Energy, one of the largest utilities in the United States. A utility with high dividend growth may seem too good to be true, but NextEra Energy’s dividend has been increased at an annualized rate of 10% over the past decade. That’s pretty good for any business, but it’s even more impressive for a public utility. In fact, half that dividend growth rate would be high for a utility!

Better yet, NextEra Energy’s management team projects dividend growth of around 10% per year through 2026. So larger dividend hikes are ahead, supported by earnings growth of between 6% and 8% per year. For reference, the dividend has been increased every year for 29 consecutive years and the dividend yield is currently at a historically high level of around 3.3%. While a 3.3% yield won’t excite income-oriented investors, combined with the strong dividend growth rate, NextEra Energy should be quite enticing to dividend growth and growth and income investors.

The key to growth here is that NextEra Energy actually combines a slow and steady, regulated utility business with a fast-growing renewable energy business. Given that the emerging clean energy transition will take decades, there is no reason to believe that NextEra Energy’s growth will suddenly stop anytime soon.

The choice is yours: high yield or high growth

Enbridge and NextEra Energy will likely appeal to different types of investors. But they share some very important traits. Both have impressive dividend histories, strong and reliable businesses, and historically high yields. These are the types of dividend stocks that you buy and hold for the long term, especially if you acquire them when they appear to be on sale.

Should you invest $1,000 in Enbridge right now?

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Ruben Gregg Brewer holds positions at Enbridge. The Motley Fool holds positions in and recommends Enbridge and NextEra Energy. The Motley Fool has a disclosure policy.

Bull Market Buying: 2 Dividend Stocks to Hold for the Long Term was originally published by The Motley Fool

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