There's no question that the demand for clean energy is set to keep expanding in the future. But that doesn't mean the shift away from carbon fuels will be swift. In fact, it is far more likely that the world will need all of the energy sources it currently has as well as new ones to meet the demands of a growing global population. That gives Enbridge (ENB -3.62%) plenty of time to milk its cash-cow operations while building out its still-small renewable power portfolio.
A North American giant
Canada's Enbridge sports an $84 billion market capitalization. The company claims to move about 30% of the crude oil produced in North America -- 58% of earnings before interest, taxes, depreciation, and amortization (EBITDA) -- and around 20% of the natural gas consumed in the United States (26% of EBITDA). It also operates the third-largest natural gas utility by customer count (12% of EBITDA). It is, thus, firmly entrenched in the carbon-energy business. And with demand for these fuels expected to grow by 18% through 2040, according to the International Energy Agency (IEA), there's plenty of demand left to support these operations.
The key here, however, is that Enbridge is a midstream company, so it transports these fuels for a fee. The natural gas utility, meanwhile, is regulated and a highly stable cash generator. So the ups and downs of oil and natural gas, which are volatile commodities, don't play a huge role here.
The best part of the story is that Enbridge currently expects to produce around $2 billion in excess cash annually over the next few years. That money can go to debt reduction, stock buybacks (the current preference), acquisitions, and internal investments. That excess cash also provides a huge cushion for the generous 6.3% dividend yield on offer here. Note, too, that the dividend has been increased annually for 27 years. That puts Enbridge in the Dividend Aristocrat space. This is no fly-by-night company.
The other 4%
Here's the interesting thing about Enbridge -- it isn't relying only on carbon fuels to support its future. The remaining 4% of EBITDA not accounted for above is derived from clean-energy investments. That figure was just 3% a year or so ago, which is a small absolute change but a 33% increase on a percentage basis. More growth is on the way.
That's because Enbridge has a number of large offshore wind projects it will be bringing online in Europe over the next few years. In fact, roughly 30% of the company's capital spending budget is earmarked for clean-energy investments today. Step back and contemplate that number for one second. A business that represents 4% of the company's EBITDA is slated to get 30% of its capital investment spending. So Enbridge is clearly serious about using its cash-cow carbon operations to change for the future.
A name for today and tomorrow
If you are looking at the energy sector, you need to balance today's needs with tomorrow's needs. Enbridge is doing exactly that, providing the carbon fuels the world still needs and building out a clean-energy business funded by carbon operations. And with ample excess cash flow, there's little risk that the fat dividend gets cut along the way. That sounds like an energy stock you can comfortably own for a long time.