Joe Gemino: Some of our best energy dividend growth stocks are among some of our top calls in the sector.
Five-star rated wide-moat Enbridge offers 50% upside and also gives investors an attractive 6.3% yield. More impressively, we think that the company will meet its planned 10% annual dividend growth through 2020. Enbridge sports a near-term CAD 22 billion in commercially secured capital projects in its growth portfolio, which is highlighted by the Line 3 replacement project. We expect the growth portfolio to generate almost CAD 4 billion in incremental EBITDA, which will support the dividend growth with a healthy distributable cash flow ratio of 1.4 times the dividend, which is more than enough buffer.
If the stock price doesn't appreciate from current levels, we expect it to yield 7% at the end of 2019 and 7.7% at the end of 2020 when Enbridge increases its dividend each year.
Narrow-moat 4-star rated TransCanada offers 40% upside coupled with a 5.3% dividend yield. Like Enbridge, the company expects to grow its dividend, but in the 8% to 10% range throughout 2021. TransCanada boasts CAD 32 billion in commercially secured growth projects in its portfolio, highlighted by the Keystone XL.
If the stock price doesn't appreciate from current levels, we expect it to yield 5.9% at the end of 2019, 6.5% at the end of 2020, and 7.1% at the end of 2021 when TransCanada increases its dividend each year.
It's worth noting that the Keystone XL is not one of the projects that we expect to underpin near-term dividend growth. If the project is successfully placed into service, we could see further attractive dividend increases after 2021.