2 Top Dividend Stocks I Can't Wait to Buy in September

I’m on a journey to grow my passive income to the point where it can eventually offset my expenses. I make incremental progress on this pursuit each month by buying more shares of high-quality dividend-paying stocks. I concentrate on companies that offer above-average-yielding payouts that increase steadily.

Enbridge (ENB 1.23%) and 3M (MMM 0.26%) are near the top of my buy list for September. Here’s why I can’t wait to buy more shares this month.

Lots of fuel to grow the dividend

Enbridge has an incredible track record of paying dividends. The Canadian energy infrastructure giant has paid dividends for more than 68 years. It has increased its payout in each of the last 28. I expect that growth to continue. 

The pipeline and utility company generates very durable cash flows backed by government-regulated rate structures and long-term contracts. It aims to pay out 60% to 70% of its stable cash flow in dividends. That gives it a nice cushion while allowing it to retain substantial cash to fund new investments. Enbridge also has a strong investment-grade balance sheet backed by a leverage ratio toward the low end of its target range. That gives it additional financial flexibility to support its dividend and expansion strategy. The company’s low-risk business model and strong financial profile put its 7.5%-yielding dividend on a very firm foundation. 

Enbridge’s post-dividend free cash and balance sheet flexibility give it about 6 billion Canadian dollars ($4.4 billion) of annual investment capacity. That’s money it can invest in organic expansions, and use to make bolt-on acquisitions and opportunistically repurchase shares.

The company currently has CA$19 billion ($14 billion) of commercially secured expansion projects in its backlog that should come online through 2028, with many more opportunities under development. This gives it lots of visibility into future cash flow growth. Enbridge expects its cash flow per share to rise at a 3% annual rate through 2025, and by around 5% per year in 2026 and beyond. That should support dividend growth within that range.

Finally turning a corner

Industrial giant 3M has seen better days. The company has faced significant legal headwinds in recent years. That has put pressure on its stock price, driving its dividend yield up to around 6%.

However, the company’s legal issues are starting to get clearer. It has agreed to two major settlements in recent months that should start to remove some of that overhang. While it has agreed to pay $18.5 billion in the coming years to settle most of its claims, 3M has the cash flow and balance sheet strength to cover this liability. 

Because of that, its big-time dividend looks safe. 3M generates plenty of cash to cover that payout with room to spare. It produced $2.4 billion in adjusted free cash flow through the first half of the year, easily covering its $1.7 billion dividend outlay. Free cash flow has grown 35% this year as the company has taken steps to reduce costs and improve its earnings. 

3M’s improving cash flow and much clearer legal liabilities could give the company the confidence to continue increasing its dividend in the future. It has increased its dividend for 65 straight years. That puts it in the elite group of Dividend Kings, companies with 50 or more straight years of dividend increases. 

3M’s dividend increases have been very modest in recent years, including by 0.7% earlier this year. It likely will continue providing investors with smaller increases in the coming years as it works off its legal liabilities and turns around its operations. However, the payout should continue growing, which makes it an attractive income stream compared to the fixed payments offered by bonds. 

High payouts with exceptional growth track records

Enbridge and 3M have two characteristics I love to see in a dividend stock I own. They offer a high-yielding payout with an outstanding track record of growth. That’s why I’m excited to buy more shares this month as I continue growing my passive income streams.

Matthew DiLallo has positions in 3M and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.

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