Enbridge (NYSE:ENB) provided its outlook for 2019 and beyond at its recent investor day. Not only did it reaffirm its three-year forecast -- including officially giving investors a 10% dividend increase for 2019 -- but it provided an initial glimpse of its post-2020 growth potential. Here's a closer look at what the Canadian energy infrastructure giant sees coming down the pipeline.
On track through 2020
Late last year, Enbridge unveiled its three-year outlook, which anticipated that the company's distributable cash flow per share and dividend would expand at a 10% compound annual growth rate (CAGR) through 2020. Fueling that plan would be the 22 billion Canadian dollars ($16.4 billion) of expansion projects the company had under development, partially offset by the expectation that it would sell CA$3 billion ($2.2 billion) of non-core assets to shore up its balance sheet.
The company noted at this year's investor day that it remains on track to achieve that forecast. That's despite some significant alterations along the way. For starters, the company signed agreements to sell CA$7.5 billion ($5.6 billion) of non-core assets in the last year, which have helped push its leverage ratio down to a more comfortable 4.7 times debt to EBITDA, below its 5.0 times target. Meanwhile, the company agreed to acquire all of its publicly traded affiliates for more than $10 billion. Enbridge has been able to more than offset those items by generating stronger-than-expected earnings in 2018 and securing some additional expansions projects to stay on track to achieve its three-year outlook.
A more conservative approach post-2020
In addition to reaffirming its forecast through 2020, Enbridge provided its initial outlook beyond that timeframe, noting that it should be able to grow distributable cash flow per share at a 5% to 7% CAGR. Further, the company can achieve that growth without needing to issue any equity to fund expansion projects. That's important to note given that the company's stock currently trades near a bottom-of-the-barrel valuation.
Enbridge anticipates that it should be able to invest CA$5 billion to CA$6 billion ($3.7 billion to $4.5 billion) per year on expansion initiatives to fuel growth post-2020. The company has already lined up several opportunities after announcing the addition of CA$1.8 billion ($1.3 billion) of newly secured investments.
Enbridge said it would invest $600 million into the Gray Oak Pipeline, which will move oil from the Permian Basin to the Gulf Coast. Phillips 66 Partners (NYSE:PSXP) is leading the development of that project, which should start service by the end of next year. Phillips 66 Partners had owned a 75% stake in the project, but Enbridge will exercise its option to buy a 22.5% interest from Phillips 66 Partners.
In addition to that, Enbridge is acquiring the Leismer pipelines and Cheecham storage terminal from Athabasca Oil Corporation (OTC:ATHOF) for CA$265 million ($198 million). Those assets will provide Enbridge with steady cash flow from long-term contracts while giving Athabasca Oil some much-needed cash to enhance its liquidity.
Finally, Enbridge plans to invest about CA$800 million ($597 million) on four gas transmission expansion projects that should come online in the 2020 to 2023 timeframe. These include expanding an offshore pipeline system in the Gulf of Mexico, a project that will connect gas supplies to an LNG export facility along the U.S. Gulf Coast, and two pipeline expansion projects in Florida.
On top of those recently secured investments, Enbridge noted that it has as much as CA$6 billion ($4.5 billion) of opportunities under development to fuel growth beyond 2020. These include additional gas transmission projects along the U.S. Gulf Coast as well as in Western Canada, several projects at its utilities, and some liquids pipeline expansion projects in both the U.S. and Canada. The company shouldn't have any problem securing new projects given that North America needs to build an estimated $800 billion of additional energy infrastructure by 2035. Meanwhile, there's always the potential for the company to undertake a large-scale acquisition to bolster its opportunity set.
A very compelling opportunity for the long term
Enbridge is on track to achieve the high end of its 2018 forecast, which keeps it on pace to deliver on its ambitious three-year expansion plan. Meanwhile, the company still has plenty of growth coming down the pipeline post-2020. However, despite all of this progress, shares of the Canadian pipeline giant have lost nearly 20% of their value in the past year. That lower price makes Enbridge an even more compelling opportunity for the long haul.