With enterprise values north of $100 billion, Enbridge (ENB -0.32%) and Duke Energy (DUK -0.49%) are two of the largest energy infrastructure companies in North America. That said, they each have a slightly different focus. Duke Energy is one of the biggest electric and gas utilities in the U.S while Canada's Enbridge focuses more on operating oil and gas pipelines, though it operates Canada's largest gas distribution franchise and it generates a significant amount of power. That said, despite the similar sizes and business lines, Enbridge is by far the better growth stock.
No. 1: A more diversified pipeline of growth projects
Both companies currently boast robust growth pipelines. Duke Energy, for example, plans to spend $37 billion on growth capital projects through 2021. Meanwhile, Enbridge expects to invest 26 billion Canadian dollars ($20 billion) on capital projects through 2019, with another CA$48 billion ($37 billion) of projects lined up for the longer term.
That said, the bulk of Duke Energy's capital spending will be on expanding its electric utilities and related infrastructure, with the company planning to pour $30 billion into those assets over the next several years. That represents 89% of its total planned capital spending. Duke intends to invest the rest of its budget on expanding its gas utilities and infrastructure segment and on commercial renewables, which will get 8% ($6 billion) and 3% ($1 billion) of the total, respectively.
Contrast that electric utilities-focused investment plan with Enbridge's more diversified backlog. The Canadian pipeline giant plans on spending slightly less than half of its near-term capital on building new oil pipelines and will invest another quarter of its budget on new gas pipelines. Meanwhile, it will split the remaining capital between renewables, gas midstream, and gas utilities. Further, its longer-term opportunity set is even more balanced, with gas pipelines representing the largest portion at around 40%, while its other segments will receive between 10% and 25% of investment spending in future years.
No. 2: Faster cash flow growth in the forecast
Enbridge's diversified project backlog is a significant competitive advantage over rivals like Duke. That's clear by taking a look at the wide gap between the earnings growth forecast of these two energy infrastructure giants. Duke Energy, for example, expects to grow its adjusted earnings per share by a 4% to 6% compound annual rate through 2021. Enbridge, on the other hand, expects to deliver 12% to 14% compound annual growth in available cash flow per share through 2019.
Driving Duke Energy's lower growth rate is the type of projects it will invest in over the next few years. As noted, the company plans on spending the bulk of its growth capital on its electric utilities. That said, the $30 billion investment will only deliver about 4% to 5% compound annual earnings growth through 2021. The company is enhancing that growth by investing some money into higher return gas utilities and renewable projects. For example, its $6 billion investment in expanding its gas utilities should deliver 10% to 12% compound annual earnings growth in that segment while the $1 billion it spends on commercial renewables should fuel 8% to 12% compound annual earnings growth. Put another way, by investing the bulk of its capital into lower return electric utility projects, Duke Energy simply can't grow earnings as fast as Enbridge, which is investing more money into higher return projects, such as lucrative offshore wind developments in Europe.
No. 3: Industry-leading dividend growth projections
By growing earnings and cash flow at a quicker clip, Enbridge estimates that it can boost its payout by a 10% to 12% compound annual growth rate all the way through 2024. Contrast that with Duke Energy, which sees its payout rising along with earnings, or by about a 4% to 6% compound annual rate through 2021.
That difference in the pace of growth could really add up for shareholders. While both companies currently offer similar dividend yields of more than 4%, Enbridge's faster dividend growth should fuel higher total returns for shareholders. For example, Enbridge estimates that when adding its dividend yield with its earnings growth of around 12% that it should deliver 16% total annual returns for investors. Contrast that with Duke Energy, which forecasts a total shareholder return of 8% to 10% annually over the next several years. While Duke Energy offers an attractive total return proposition, Enbridge offers investors the potential to earn peer-leading total returns.
Enbridge is a better growth stock than Duke Energy by a wide margin. That's because while both companies expect to invest billions in expanding their energy infrastructure platforms, the bulk of Enbridge's investments will be in higher return pipelines and renewable projects. That stronger pipeline of growth projects will enable the company to grow earnings at a higher rate, which positions it to increase its dividend at a faster clip. The result should be greater total returns for Enbridge investors.