Motley Fool: Enbridge for income

Dividend stocks have historically been excellent investments.

Over the last 50 years, dividend-paying stocks in the S&P 500 have outperformed that broad market index: According to data from Ned Davis Research and Hartford Funds, they’ve averaged roughly 9.2% annually in total return, compared to 7.7% for an equal-weighted S&P 500 index fund.

Meet Enbridge (NYSE: ENB), a Canadian energy infrastructure giant that has delivered 28 straight years of dividend growth and has plenty of fuel to keep that streak going. Its dividend recently yielded a whopping 7.6%.

Enbridge is methodically transitioning its business to lower-carbon energy by using some of the cash flows from its fossil fuels businesses to invest in infrastructure to support a clean energy future – such as European wind energy farms and a renewable natural gas (biogas) platform.

That’s making its dividend more sustainable, while ensuring it has the power to continue increasing its payout.

CEO Greg Ebel recently stated: “Our business is stable, and we remain committed to delivering predictable cash flows. The balance sheet is strong and remains a key priority.”

Enbridge isn’t likely to be a rapid grower, but it’s likely to keep growing – and raising its dividend, too.

It should appeal to those seeking both income and upside potential. (The Motley Fool owns shares of and has recommended Enbridge.)

Ask the Fool

Q. Will it really hurt my credit score if I close some credit card accounts? – P.S., Anchorage, Alaska

A. Sorry, but yes. The FICO score is among the most commonly used, and about 30% of your FICO score is tied to how much you owe relative to your available credit.

If you have five credit cards with a total credit limit of $50,000 and you owe $25,000, you’re using 50% of your available credit.

But if you close two accounts and your total credit limit drops to $30,000, you’re suddenly using most of your available credit, and a bank might not be eager to lend you more.

Meanwhile, 15% of your FICO score is based on the length of your credit history. If you close out cards that you’ve held for many years, that can lower the average age of your accounts, which also lowers your score.

Q. What’s a shell company? – A.D., Conway, Arkansas

A. It’s a generally legal structure that can have a legitimate purpose, such as when it’s a special purpose acquisition company (SPAC) formed to acquire another company.

But shell corporations have a shady reputation.

The Corporate Finance Institute minces no words: “A shell corporation is a business that is formed that has no actual business operations. They are mostly created for money laundering .… They do not employ anyone or provide any services.

“Shell corporations are created in tax havens to avoid paying taxes and to hide the identity of the owner. If an individual is involved in an illegal activity, a shell corporation can be a platform to hide money.”

Shell companies are often established in countries with very business-friendly laws or low tax rates (such as the Cayman Islands or Switzerland).

My Dumbest Investment

One of my regrettable investments happened decades ago.

I got tired of watching my Ginnie Mae mutual fund drop from well over $15 per share to $14.60.

Against some advice, I sold my shares and bought a certificate of deposit paying 3.55% in interest. And then the Ginnie Mae fund started rising again. – P.B., Dallas

The Fool responds: Investments do often fluctuate in value. If you were looking for some that would grow in value rapidly, like some stocks, those investments wouldn’t.

Ginnie Mae (short for the Government National Mortgage Association, or GNMA) is wholly owned by the U.S. government, with the mission of helping Americans buy homes.

A Ginnie Mae mutual fund therefore offers access to securities backed by the U.S. government, making them quite safe.

Of course, safer investments tend to offer lower returns.

Consider the Vanguard GNMA Fund, about which Vanguard says: “The fund primarily invests in GNMA securities, which are backed by the full faith and credit of the U.S. government and typically offer a higher yield than U.S. Treasuries.”

Since inception in 1980, the fund has averaged annual gains of more than 6%, but over the past decade, gains have averaged less than 1%.

Ginnie Mae funds aren’t likely to soar in value, but they do offer income; the Vanguard fund recently yielded a solid 3.4%, for example. Income from certificates of deposit, meanwhile, simply reflects prevailing interest rates.