When it comes to dividend investing, one of the biggest mistakes investors consistently make is focusing too much on the current yield a stock offers.
This makes sense because on the surface it is easy to think that the higher the yield, the better the investment.
But in many cases, unless the dividend is very high, the yield actually tells you little about the quality of a business.
So, although some of the highest-yielding stocks may actually be the riskiest, especially if that dividend isn’t sustainable, there are even more important factors to consider when you’re trying to figure out what really makes a “good” dividend stock.
Because investing in dividend stocks isn’t just about how much income you’re getting today, it’s about how reliable that income is, whether it can keep growing over time, and how fast it can grow over time.
That’s why some of the best dividend stocks are usually some of the least exciting businesses, and often some of the most predictable.
That’s why if you’re looking for high-quality, reliable dividend payers, infrastructure stocks are some of the best. These are businesses that operate essential assets like pipelines, utilities, and rail networks that the economy depends on every day.
Furthermore, they not only provide essential services, but they also generate steady cash flow, have massive barriers to entry, and, in many cases, can grow their revenues in line with inflation.
And when you combine this with a disciplined payout ratio and consistent long-term growth, that’s what really makes a dividend stock “good.”
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A high-yield infrastructure stock built for reliable dividend income
If you are looking for a reliable dividend stock to buy with confidence and hold for years, this is one of the best examples in Canada enbridge (TSX:ENB).
Enbridge is a giant 164 billion dollar company It operates one of the largest energy infrastructure networks in North America, transporting oil and natural gas across the continent.
And what makes that business so valuable is that it operates more like a toll road than a traditional energy company, paying for energy moved rather than energy produced.
This means its cash flows are largely backed by long-term contracts, making it more predictable than companies with direct exposure to commodity prices.
On top of this, Enbridge is continually retaining capital to expand its business over time, including increasing its exposure to utility-like operations, which further stabilizes its earnings. Furthermore, those continued investments in growth also support Enbridge’s attractive dividend and consistent dividend growth.
So it not only provides a sustainable dividend with current produce of 5.2%, but it has also raised its dividend every year for three consecutive decades.
This means that every year you hold the stock, Enbridge pays you more. It also reflects the resiliency of Enbridge’s business, which has had the ability to not only pay, but also grow its dividend through many different financial environments, market ups and downs, and recessions over the past 30 years.
So, while the yield is attractive, it’s the combination of reliable cash flow and disciplined management that really makes Enbridge one of the best dividend stocks in Canada.
Low yield stock with strong long-term growth potential
While Enbridge is a great choice for investors looking for high income today, Canadian National Railway (TSX: CNR) is a perfect example of why a lower yield can still be just as attractive over the long term.
Canadian National operates a vast rail network that connects major regions of North America, moving everything from commodities to consumer goods.
And like other infrastructure businesses, it benefits from a huge competitive advantage, because building a competitive rail network would be incredibly expensive and almost impossible from a regulatory perspective.
This gives the company strong pricing power and allows it to generate consistent earnings over time. And that stability is what drives its dividend.
So, while the yield is low, currently around 2.4%, the company also has a long history of increasing its dividend, and retains even more capital than Enbridge, which helps create significant long-term growth potential and supports continued dividend growth for years to come.
So, at the end of the day, if you’re looking for a good dividend stock, it’s not just about how much income you’re getting today; It’s also about how reliable the dividend is and how much it can grow over time.