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2 Great Dividend Growth Stocks for the Long Haul

Companies that routinely increase their dividends have richly rewarded investors over the years. Dividend growth stocks have historically outperformed not only the S&P 500 but also companies that have merely maintained their payouts. Income-seekers should therefore focus on stocks that can pay a growing dividend.

Two that have both a long history of increasing their payouts, as well as visible growth ahead, are Canadian pipeline giants Enbridge (NYSE: ENB) and TC Energy (NYSE: TRP). That makes them excellent options for investors seeking a steadily rising income stream.

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On the way to dividend royalty

Enbridge has paid a dividend to its investors for the past 64 years. Even better, it has increased it in each of the past 24 years. That puts it one year shy of delivering on one of the main characteristics of a Dividend Aristocrat, which are companies that have boosted their payouts for at least 25 consecutive years. The Canadian pipeline company fully expects to hit that elite level, as it's targeting to increase its 5.9%-yielding dividend by another 10% in 2020. Furthermore, it believes it can continue growing its payout by a 5% to 7% annual pace after next year.

Driving that outlook is Enbridge's low-risk business model and a healthy backlog of expansion projects. The company currently gets 98% of its earnings from stable sources like long-term, fee-based contracts. Meanwhile, it pays out a conservative 65% of its cash flow to investors through its dividend, which provides it with some excess cash to invest in expansion projects. Finally, it tops that off with a solid investment-grade credit rating, which gives it the financial flexibility to invest in growth-focused opportunities.

The company currently has $19 billion Canadian ($14 billion) of expansion projects under construction, including CA$9 billion ($7 billion) that should enter service by the end of this year. Meanwhile, it has the financial flexibility to fund between CA$5 billion to CA$6 billion ($3.8 billion to $4.5 billion) of expansion projects per year after 2020. These expansion projects should enable Enbridge to continue growing its cash flow, which will support its long-term dividend growth plan.

19 years of steady growth, with plenty of fuel to keep going

TC Energy has treated its investors well over the years. It has currently boosted its dividend in each of the past 19 years, growing it at a 7% compound annual rate during that timeframe. That steady dividend growth has given the Canadian pipeline company the fuel to outperform. Overall, it has generated a more than 1,125% total return during those 19 years, which has crushed the S&P 500's roughly 205% total return in that period.

TC Energy appears primed for more dividend growth in the coming years. It currently expects to increase its 4.6%-yielding payout by at an 8% to 10% annual rate through 2021. Supporting that outlook is its top-notch financial profile and expansion program. On the financial side, TC Energy generates stable cash flow, as 93% of its earnings have no volume or commodity price exposure. It complements that with a conservative dividend payout rate of 60% of its cash flow and an investment-grade balance sheet. Meanwhile, it has CA$30 billion ($22.7 billion) of expansion projects under construction to drive cash flow growth through 2023, with another CA$20 billion ($15 billion) of projects in development. That visible growth leads TC Energy to believe that it can increase its dividend at a 5% to 7% annual rate after 2021.

Excellent additions to any income portfolio

Enbridge and TC Energy have a long history of increasing their dividends each year. That steady growth should continue for the next several years, since they both have strong financial profiles and highly visible growth prospects. That makes either one a great option for investors who are looking for a dividend growth stock to buy and hold for the long term.

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Matthew DiLallo owns shares of Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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