Income Stocks: A Once-in-a-Decade Chance to Capture Ridiculously High Yields

The way the market is moving right now, growth stocks are rising, while many dividend stocks are correcting. This is a once-in-a-decade opportunity to lock in a high dividend yield before they recover. And I’m not talking about any dividend stocks; I’m talking about the Dividend King Enbridge (TSX:ENB).

The energy infrastructure stock is down 8.5% since May, boosting its dividend yield by more than 7%. Enbridge participates in the likes of high-dividend stocks like TransAlta Changeable. But this high yield will not last long, because the stock can turn back at any time.

Behind Enbridge’s 7.3% dividend yield

Enbridge stock fell closer to its 52-week low ahead of the US Fed meeting on July 26. About 93.6% of Wall Street expects the Fed to raise interest rates by another 25 basis points to 5.25 -5.5% Enbridge has been sensitive to rising interest rates, as its unsecured floating-rate debt (less than 5% of its total debt) increases its interest costs. Its interest expense rose 22.5% to $1.01 billion in the first quarter ($824 million in the year-ago quarter), as the Fed raised its interest rate from 0.25% to 5%.

The rate hike has reduced the stock prices of most highly indebted infrastructure companies. But if you look at Enbridge’s balance sheet, it has a 4.6 times leverage ratio, which is within its range of 4.2 to five times. The company has already set aside funds for $5 billion in debt maturing in 2023. Even rising interest costs won’t affect its dividends because it only allocates 60-70% of its distributable cash flow (DCF) for payment. And DCF is calculated after deducting interest expenses.

The dividend per share is expected to grow by 3% next year. But falling stock prices boosted the yield to 7.3%.

A once in a decade opportunity to lock in a 7.3% yield

Enbridge’s high yields are unsustainable. Its stock declined due to expectations of rising interest rates and rising summer temperatures. This will increase as the demand for natural gas heating increases in the winter (November to March).

It’s time to stock up on your summer income-generating shares to enjoy winter and year-round dividend income. Such an opportunistic time did not last long, because investors began to buy the dip and push the stock price.

While Enbridge expects its DCF to grow at a compound annual growth rate of 3% through 2025, I believe it may accelerate dividend growth beyond 2025. This growth could come from Enbridge’s infrastructure investments to tap North American liquefied natural gas (LNG) exports. in European and Asian markets. It expects the LNG export market to grow by 200% by 2035.

Another stock to lock in 7% yield

While we’re on energy infrastructure, another pipeline stock TC Energy (TSX:TRP) is trading at its 52-week low for other reasons. And this is your chance to lock in a +7% yield. Unlike Enbridge, which has a large exposure to oil pipelines, TC Energy has a high exposure to LNG lines. The latter is struggling with two projects – the Keystone Pipeline and the Coastal GasLink Pipeline. These two pipelines cost billions of dollars out of its own pocket.

TC Energy is facing a lawsuit from the shareholders of the Columbia Pipeline for giving them a lower price during the acquisition in 2016. The court voted in favor of the shareholders, and the amount of claim is under discussion, with TC Energy considering appealing the order. However, this is unlikely to affect the company’s dividend.

DIY investment tip

According to the Rule of 72, a 7% annual return can double your money in a little over 10 years. But if you compound the returns by reinvesting the dividend, you can double your money faster. And add a 3% dividend CAGR offered by both pipeline companies, and your investment is inflation hedged.

Even if you own these income stocks, you can add to your portfolio and maximize your average yield.