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Canada’s big six banks enjoyed a dividend windfall at the end of 2021 when the banking regulator lifted restrictions on dividend hikes. The country’s major lenders had massive excess capital from the provision for credit losses (PCL) as the credit quality of loan portfolios did not deteriorate.
In 2022, energy companies are generating strong free cash flow (FCF) and posting soaring profits. Shareholder returns increase through share buybacks and dividend payments. There is no limit to the amount companies can reward investors, as long as commodity prices remain high.
If you’re aiming for energy stock dividends, Enbridge (TSX:ENB)(NYSE:ENB) and Gibson Energy (TSX:GEI) are generous dividend payers. The average dividend yield is 6.085%. Assuming you invest $12,500 in each, you can generate $380.31 in passive income each quarter.
Enbridge is an obvious buy, as it is the TSX’s top energy stock. In Brand Finance’s rankings, the $112.48 billion energy infrastructure company is 16th out of Canada’s 100 Best Value Brands for 2022. At $55.55 per share (+17.76% since inception for the year, the dividend yield is 6.19%.
The total return of 56,314.14% in 46.43 years is proof that energy stock is a long-term investment. Enbridge operates in a volatile industry, but has defensive qualities that can weather economic downturns. Most importantly, its four premier franchises provide essential services to North America’s midstream oil and gas industry.
Business segments such as Liquids Pipelines, Gas Transmission, Gas Distribution and Storage, and Renewable Energy are the sources of Enbridge’s diversified cash flows. Growth is on the horizon due to the nearly $13 billion worth ($3.6 billion of newly secured projects) of the growth program secured.
According to management, it has $5 billion to $6 billion in annual capacity to finance growth projects. Enbridge derives funds from internally generated free cash flow. Given that this energy stock enjoys a 27-year dividend growth streak, potential investors can expect growing income streams each year.
Pure Dividend Game
Gibson Energy’s size is only 3% of Enbridge, although this is a pure dividend game given the 5.98% dividend offer. At $24.76 per share, the year-to-date gain is 13.76%. Over the past 12 months, the company has paid out a total of $211.37 million in dividends.
Gibson, a $3.62 billion liquids infrastructure company, has operated in the same industry as Enbridge since 1950. It is dedicated to the storage, optimization, processing and collection of liquids and products refined.
In the second quarter (Q2) of 2022, management reported net income of $35.91 million, an increase of 11% over Q2 2021. For the first half (six months ended June 30, 2022), net income increased 34.9% year over year to $87.88 million.
Steve Spaulding, president and chief executive officer (CEO) of Gibson, said the performance of the operating segments (marketing and infrastructure) in the second quarter was in line with management’s expectations. Spaulding was also excited about the commissioning of the biofuel blending project.
For the remainder of 2022, Gibson plans to deploy $100-125 million of growth capital and intends to continue share buybacks.
Industry experts predict that oil demand and prices will increase by winter. Taking a position in high-yielding energy stocks is one of the best options for earning passive income and creating a hedge against inflation at the same time.