1 High-Yield Dividend Stock Yielding Nearly 6% That's Safe to Buy -- and 1 Yielding Over 8% I Wouldn't Touch

Key Points

• Enbridge has increased its dividend for 31 straight years.
• Delek Logistics Partners has raised its distribution for 54 consecutive quarters.
• Enbridge's high-yielding dividend is on a much stronger foundation than Delek's.
• 10 stocks we like better than Enbridge ›

Enbridge (NYSE:ENB) and Delek Logistics Partners (NYSE:DKL) currently offer big-time yields. Enbridge is approaching 6%, while Delek is over 8%, each several multiples above the S&P 500. Both energy midstream companies have long records of increasing their high-yielding payouts.

Despite their solid growth records, only Enbridge is safe to buy. Here's why I think income-focused investors should buy that pipeline stock instead of its higher-yielding rival.

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Enbridge is as safe as it gets

Enbridge operates one of the most resilient business models in the energy sector. The company's diversified platform (liquids pipelines, gas transmission, gas distribution, and renewable energy) generates very stable revenue. It has more than 200 asset streams and businesses that derive more than 98% of their earnings from regulated rate structures or take-or-pay contracts with high-quality counterparties (over 95% investment grade). Enbridge's revenue is so predictable that it has achieved its financial guidance for 20 straight years. That includes two major recessions and several other oil market and economic upheavals.

The company also has a fortress financial profile. It has a strong investment-grade balance sheet and a conservative dividend payout ratio (60%-70%). That provides it with billions of dollars of annual investment capacity to fund expansion projects and acquisitions. Enbridge currently expects to grow its cash flow per share at around a 5% annual rate after next year, which should support continued dividend increases (31 straight years in Canadian dollars). These factors put the company's high-yielding payout on one of the safest foundations in the energy sector.

Delek Logistics: A higher-risk, high-yielding payout

Delek Logistics Partners also has a solid record of increasing its distribution. The master limited partnership (an entity that issues a Schedule K-1 Federal tax form each year) has raised its distribution for 54 straight quarters (13.5 consecutive years). That's an impressive streak, especially in the volatile energy sector.

Despite that, I have several concerns with Delek Logistics Partners. My biggest one is its weaker financial profile. The MLP has junk-rated credit, which significantly increases its borrowing costs. It also has a higher dividend payout ratio (75% during the first half of this year). That gives it less financial flexibility.

Delek Logistics also has a much less diversified business. About 30% of its earnings come from its parent company, refiner Delek U.S. Holdings. While that's down from 59% in 2023, that's still a lot of exposure to one customer, especially given Delek's sub-investment-grade credit rating. Delek Logistics also has a much less diversified business model, focusing on operating natural gas gathering and processing assets and crude oil logistics assets. While Delek Logistics has been investing to diversify away from its parent and into different areas (including water handling in recent years), it's much less diversified than Enbridge.

Enbridge is the much safer bet for a sustainable income stream

Delek Logistics has done a solid job growing its distribution despite its weaker financial profile and more concentrated business. However, it's still too high-risk for me. I'd much prefer the lower-risk, lower-yield dividend that Enbridge should continue to deliver even during turbulent times than to stretch for the higher-risk income stream currently offered by Delek Logistics.

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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Delek Us. The Motley Fool has a disclosure policy.