While the second quarter was an abysmal one for the oil sector, it had a minimal effect on Enbridge's (ENB 0.90%) financial results thanks to its durable business model. The Canadian energy infrastructure giant remains on track to achieve its full-year forecast. Add that to its excellent financial profile and visible growth prospects, and the company's 7.4%-yielding dividend is on rock-solid ground.
Drilling down into Enbridge's second-quarter results
|
Metric |
Q2 2020 |
Q2 2019 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted EBITDA |
$3.312 billion |
$3.208 billion |
3.2% |
|
Distributable cash flow (DCF) |
$2.437 billion |
$2.310 billion |
5.5% |
|
DCF per unit |
$1.21 |
$1.14 |
6.1% |
|
Dividend payout ratio |
67% |
65% |
3.1% |
Data source: Enbridge. NOTE: All figures in Canadian dollars. Current exchange rate CA$1 = US$0.75.
Enbridge generated impressive second-quarter results as its earnings and cash flow increased during a brutally challenging period for the energy sector. Powering its strong performance amid the storm was the overall durability of its diversified operations:
Data source: Enbridge.
Earnings from liquids pipelines dipped by about 1% due primarily to lower volumes because of the turbulent market conditions. However, the company offset much of this impact thanks to the strength of its contract profile.
Gas transmission and midstream earnings increased by 4% year over year. Fueling that growth were higher rates on its Texas Eastern system, the contribution of new assets, and a stronger U.S. dollar, which offset the sale of its Canadian gathering and processing assets.
Gas distribution and storage earnings also rose by about 4%. This business benefited from colder weather during the period, customer growth, higher rates, and cost savings.
Earnings from Enbridge's renewable power business surged 50% year over year. Strong wind resource conditions in the U.S. and its recently completed offshore wind farms in Germany contributed to that increase.
Finally, energy services earnings dipped about 2% year over year as lower regional oil prices offset the company's ability to capture storage opportunities.
Image source: Getty Images.
A look at what's ahead for Enbridge
"In the face of the worst energy downturn our industry has ever experienced, the strength and resilience of our assets was demonstrated once again in the second quarter, with solid financial results," stated CEO Al Monaco. Overall, Enbridge's results exceeded its expectations for the quarter and the first half of the year. Now the company expects to achieve its full-year distributable cash flow guidance range of CA$4.50 to CA$4.80 per share ($3.37 to $3.59 per share) despite some headwinds it sees ahead for the second half.
Enbridge also made excellent progress on its expansion program during the first half of the year. It's currently working on CA$11 billion ($8.2 billion) of expansion projects that should start up through 2022. That's about CA$1 billion ($750 million) above where it began the quarter as the company secured four new gas utility projects and approved another European offshore wind farm.
The company also took advantage of low interest rates to raise CA$6.9 billion ($5.2 billion) of capital during the first half of this year. As a result, it now has about CA$14 billion ($10.5 billion) of liquidity, enough funding to meet its needs through 2021.
With this foundation, Enbridge is increasingly confident in its long-term growth prospects. The company believes that it can grow its distributable cash flow per share at a 5% to 7% annual rate through 2022. With a strong balance sheet and relatively conservative payout ratio, Enbridge should be able to continue increasing its dividend, which it has done for the last 25 straight years.
Rock solid amid a raging storm
Enbridge's business model proved to be unshakable during the worst downturn in the sector's history. That's keeping its big-time dividend on rock-solid ground. Meanwhile, with a strong financial profile and growth prospects, that payout appears to be headed higher in the coming years. So it's an ideal stock for dividend investors to buy these days.
