Enbridge (ENB 0.68%) has been an outstanding dividend stock over the years. The Canadian energy infrastructure behemoth has increased its payout for 27 straight years, growing it at a 10% compound annual rate. It currently yields an attractive 6%, significantly higher than the average of the broader market, which is closer to 1.5%.
What's abundantly clear about Enbridge is that it has the fuel to continue growing its dividend in the future. Here's a closer look at what's driving that view.
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Off to a strong start of what should be another good year
Enbridge recently reported its first-quarter results. The company generated 3.1 billion Canadian dollars ($2.4 billion), or CA$1.52 per share ($1.18 per share), of distributable cash flow during the period. That's up 10.7% from last year's first quarter. That was plenty of money to cover the dividend, giving it a comfortable 57% dividend payout ratio during the quarter.
Fueling the company's growth was its strong operating performance, the completion of the Line 3 Replacement Project and B.C. pipeline expansions, the Ingleside acquisition, colder weather, and strong wind resources. These factors more than offset lower tolls on its mainline and higher taxes on its earnings.
That strong start to 2022 has Enbridge on track to achieve its full-year guidance. The Canadian energy infrastructure company expects to generate between CA$15 billion and CA$15.6 billion ($11.6 billion-$12.1 billion) of earnings before interest, taxes, depreciation, and amortization (EBITDA), which would be 9% ahead of 2021's total at the midpoint. Meanwhile, it sees its distributable cash flow coming in between CA$5.20 and CA$5.50 per share ($4.02-$4.26 per share), up 8% from last year at the midpoint. While the company is facing some headwinds from rising interest rates, robust system utilization because of higher oil and gas prices should more than offset that issue.
Adding more fuel to its growth engine
Enbridge currently has CA$10 billion ($7.7 billion) of expansion projects in the backlog that it expects to complete through 2025. All these investments are in clean energy infrastructure, including new natural gas transmission, distribution, and storage assets, and renewable power and new energy projects. It's currently building four large offshore wind energy projects in France and recently sanctioned a natural gas transmission system expansion in Southern Ontario. These secured projects should give Enbridge the fuel to grow its distributable cash flow per share at a 5% to 7% annual rate through at least 2024.
Meanwhile, the company continues to make progress on securing additional expansion projects. It recently won the right to advance the Open Access Wabamun Carbon Hub, which could capture 4 million tons of carbon dioxide emissions annually. The project would help significantly reduce Canada's greenhouse gas emissions. It's also partnering with Humble Midstream to develop low-carbon hydrogen and ammonia production and export facilities at Ingleside. Enbridge would sequester up to 95% of the carbon emissions generated by the production process in newly developed carbon capture infrastructure it would also own and operate.
Projects like these could help fuel growth in the coming years. They're part of the company's steady shift toward lower-carbon energy. This approach should enhance the long-term sustainability of Enbridge's dividend while giving it the power to keep growing the payout in the future.
A great passive income stock for the long haul
Enbridge is taking a two-pronged approach to drive growth. It's expanding its conventional oil and gas infrastructure business because those fuels remain essential for global energy security. In addition, it's pursuing lower-carbon projects vital for reducing the long-term impacts of climate change. This dual focus should enable Enbridge to continue growing its cash flow and dividend in the coming years. That makes it an excellent stock for investors seeking a sustainable passive income stream.
