We would love to invest in winners only. But that’s not how real-life investing is like. Sooner or later, it’s inevitable to run into a laggard in your dividend stock portfolio.
Sometimes, laggards provide underperformance but still a positive return. Other times, laggards outright decline over multiple years, standing out like a sore thumb in an otherwise well-performing diversified dividend portfolio.
Here are several ways to deal with laggards. Below, I’ll revisit some of my mistakes as examples to learn from.
Enbridge is a great income stock. If you’re looking to stash away some cash for at least five years, consider picking up some shares for a juicy yield of about 6.3%. This is way better than the interest income provided by GICs or CDs.
A dividend growth streak of 24 years with a three-year dividend growth rate of 11.7% puts Enbridge at the top of the list for safe dividends. Although the leading North American energy infrastructure company will experience slower growth compared to the last 20 years, it will still make a decent investment with its big yield and stable growth profile.
Enbridge anticipates growing its distributable cash flow by 5-7% over the next few years. So, it’s logical to anticipate dividend growth of about 5% per year in the foreseeable future.
The difference from Enbridge common stock and GICs or CDs, of course, is that Enbridge comes with greater volatility. That’s why investors must have a long-term investment horizon if they’re considering Enbridge. The yield on cost can grow to 8% in five years assuming a 5% dividend growth rate!
After the oil price plummet, you may be looking to invest in the top energy stocks. I compared the recent business performance of 9 oil & gas integrated companies and 7 midstream companies, respectively. I focused my analysis on profitability and debt because those factors determine whether an energy stock will survive or even thrive in a prolonged low oil price environment.
The oil & gas integrated companies analyzed include Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and Suncor Energy (TSX:SU)(NYSE:SU), and the midstream companies analyzed include Kinder Morgan Inc (NYSE:KMI), Magellan Midstream Partners, L.P. (NYSE:MMP), and Enbridge Inc. Which are the safest energy stocks for long-term investing?
Safest Integrated Oil & Gas Stocks
From the integrated oil & gas stocks, Suncor Energy is a winner. It has low cost of operations, high operating margins, as well as a culture to increase dividends. Exxon Mobil and Chevron are also winners because they have relatively high operating margins and low debt levels that can only benefit them in the low oil price environment. Read More