Enbridge (NYSE:ENB) delivered strong results for the first quarter, even though crude prices plummeted during the period. The Canadian oil pipeline giant's cash flow came in a bit ahead of expectations thanks to its resilient business model, which insulates it from near-term fluctuations in commodity prices and volumes.

Because of that, the company remains on track to deliver on its 2020 outlook and its three-year growth plan. That optimism implies that Enbridge's 7.5%-yielding dividend remains on solid ground.  

Drilling down into Enbridge's first-quarter earnings

Metric

Q1 2020

Q1 2019

Change

Adjusted EBITDA

$3.769 billion

$3.763 billion

0.2%

Distributable cash flow (DCF)

$2.758 billion

$2.706 billion

1.9%

DCF per unit

$1.37

$1.34

2.2%

Dividend payout ratio

59%

55%

7.3%

Data source: Enbridge. Note: All figures in Canadian dollars ($1 = CA$0.71).  

Enbridge generated solid results during a very turbulent quarter for the oil sector. Earnings and cash flow both rose modestly year over year, with DCF beating its guidance by $0.05 per share. As a result, the company kept its dividend payout ratio to a conservative level even though it provided investors with a sizable 9.8% raise this year.

Fueling the stronger-than-expected results was the company's pipeline operations.

Enbridge's earnings by segment in the first quarter of 2020 and 2019.

Data source: Enbridge. Chart by the author.

Earnings from liquids pipelines rose 11% year over year, fueled by strong volumes and higher rates on its Canadian mainline system. The company also benefited from healthy downstream pipeline volumes as more oil flowed toward the U.S. Gulf Coast.

Gas transmission and midstream earnings increased by 5.5%. This segment benefited from a rate case settlement on its Texas Eastern system, which more than offset the lost income from the sale of its Canadian midstream assets.

Those positives also helped offset weakness across Enbridge's other three segments. Gas distribution and storage earnings slumped due to warmer weather, renewable power generation declined as a result of headwinds at its Canadian wind farms, and the energy services segment posted a loss because of narrowing differentials between regional oil prices.

Oil pipelines over a sunset

Image source: Getty Images.

A look at what's ahead for Enbridge

Thanks to its strong start to the year, Enbridge remains on track to achieve its full-year forecast. That would see the company generate between $4.50 and 4.80 per share of cash flow. Backing that view is its best-in-class contract profile, which consists mainly of commercial agreements where Enbridge gets paid even if customers don't use their allotted capacity.

While Enbridge's earnings are immune to the oil market downturn, it's still making some changes to its 2020 spending plan as a result of the decline in commodity prices. The company is reducing operating costs by $300 million and cutting growth-related capital spending by $1 billion by deferring some projects its customers won't need as soon as initially anticipated. The company also signed contracts to sell about $400 million of assets, including 49% of its interest in several offshore wind farm developments in Europe.

Enbridge now expects to invest $4.5 billion into capital projects this year -- and another $1 billion on maintenance -- as part of a three-year, $10 billion expansion program. It expects to generate $4 billion in cash after paying its dividend this year, leaving it with about a $1.5 billion funding gap. However, with $14 billion of available liquidity, it has ample financial flexibility to cover this investment thanks to the strength of its balance sheet and its low leverage ratio. Because of that, the company has high confidence in its expansion plan, which will boost its annual cash flow by $2.5 billion through 2022 as its projects come online.

The dividend remains on rock-solid ground

The durability of Enbridge's business model was on full display during the first quarter. These resilient operations have the company on track to deliver on its 2020 outlook despite all the turmoil in the oil market.

Because of that, and the company's strong balance sheet, it should have no problem maintaining its high-yielding dividend during this downturn. That makes it an ideal choice for income-focused investors to consider buying these days.