Enbridge (TSX:ENB) and Canadian Utilities (TSX:CU) are two of Canada’s favorite dividend shares. One is a pipeline firm that additionally operates as a pure gasoline utility; the opposite is a pure-play utility. As is typical for the industries these firms function in, each Enbridge and Canadian Utilities have excessive yields: 7.8% for ENB and 6% for CU. Each of those yields are very excessive, so for those who’re searching for revenue, these shares could be a spot to begin exploring. Nevertheless, each shares are topic to varied dangers that would lead to shareholders not really receiving the dividend revenue they count on.

On this article, I’ll discover the varied dangers that ENB and CU are uncovered to, in addition to their respective deserves, so you may resolve which inventory is correct in your portfolio.

The case for Enbridge

A case for Enbridge might be constructed on the truth that the corporate is indispensable to North America’s financial system. The corporate ships about 30% of the oil shipped in North America. If an organization like this bumped into critical monetary issues, it might seemingly obtain authorities assist; the results of it going bankrupt could be too devastating for the federal government to only let it occur. The corporate’s long-term development and profitability observe document has been fairly good. Over the past 10 years, the corporate has grown its earnings per share (EPS) by 17.7% per 12 months on a compounded foundation.

That’s fairly good, though the expansion in newer years has not been pretty much as good: within the trailing 12-month interval, income is down 18% (although earnings are nonetheless rising). One threat traders ought to take into account with Enbridge is the chance of it having to pay out billions of {dollars} re-routing one in all its pipelines that goes via Wisconsin. Enbridge has been ordered by a decide to hold out this capital expenditure. If the corporate can’t win on enchantment, then it would have a serious price on its arms.

The case for Canadian Utilities

A case for Canadian utilities might be constructed on the corporate’s dividend security. CU pays out solely 82% of its earnings as dividends, whereas Enbridge pays out over 100%. So, CU’s dividends are extra supported by revenue than Enbridge’s are.

Additionally, CU’s income is way much less risky than Enbridge’s. Within the final 12 months, the corporate’s income has been down by about 1%, which isn’t a constructive however is way much less dangerous than Enbridge’s 18% decline. Utilities, basically, are likely to have steady income, as they supply a necessary service on a recurring month-to-month foundation. Additionally they sometimes face little competitors.

A serious threat for Canadian Utilities is debt. The corporate has $10 billion in web debt in comparison with $6.9 billion in shareholders’ fairness. That’s a debt-to-equity ratio nicely above 100%, which isn’t a constructive. Extra basically, because of rising rates of interest, the price of CU’s debt has elevated. So, be looking out for debt and interest-related points for those who purchase CU inventory.

Silly takeaway

All issues thought of, I discover ENB inventory and CU inventory about evenly matched. They’re each high-yielders with very leveraged steadiness sheets that often function with out points as a result of they’re important companies. If you happen to purchase both one, you’ll most likely gather the dividend however not a lot else.