Enbridge (ENB 0.08%) is one of the more prolific dividend stocks in the energy sector. The Canadian pipeline giant currently offers a dividend yield approaching 6%. Meanwhile, it has increased that payout for 27 straight years.
That big-time dividend seems likely to continue rising for several more years. Driving that view is the company's growing pipeline of expansion projects, which should boost its cash flow in the coming years.
Adding a few more projects to the backlog
Enbridge recently reported its second-quarter results. The Canadian pipeline company posted solid numbers, enabling it to reaffirm its full-year outlook. It also secured 3.6 billion Canadian dollars ($2.8 billion) of additional growth projects in the quarter. When added to the projects it secured in the first quarter, Enbridge has booked CA$4.5 billion ($3.5 billion) of commercially secured expansions this year.
These latest additions include:
- Sanctioning an extension of its Texas Eastern system to serve Venture Global's Plaquemines LNG facility in the U.S. Gulf Coast.
- Moving forward with the T-North expansion of its British Columbia Pipeline System.
- An investment in the Woodfibre LNG facility in Western Canada, which also supports the expansion of its B.C. Pipeline System.
The company expects these projects to enter service in the 2023 to 2027 timeframe, enhancing its long-term growth visibility. With these new projects, Enbridge now has CA$13 billion ($10.2 billion) of projects under way. It has CA$4 billion ($3.1 billion) of projects on track to enter service this year and CA$5 billion to CA$6 billion ($3.9 billion-$4.7 billion) of annual investment capacity, giving it ample funding to support this backlog.
It also continues to pursue additional expansion opportunities. Enbridge noted that with Woodfibre moving forward, it's exploring the potential of a more than CA$2.5 billion ($2 billion) expansion of its T-South pipeline to ensure the Pacific Northwest region has ample access to affordable natural gas. That's part of a large opportunity set that includes additional LNG export connections, liquids pipeline expansions along the U.S. Gulf Coast, gas distribution system modernizations, and additional offshore wind energy developments in Europe.
Enhancing its ability to grow
Enbridge expects its distributable cash flow to grow by 8% per share this year, driven by strong market conditions and the near-term completion of several capital projects. The company will pay out around 65% of those funds to investors to support its high-yielding dividend. That's allowing it to retain cash to fund expansion projects. On top of that, it has a solid investment-grade credit rating giving it additional funding capacity.
That strong financial profile allows Enbridge to invest CA$5 billion to CA$6 billion ($3.9 billion-$4.7 billion) per year to expand its operations. That investment rate would enable the company to grow its distributable cash flow per share by 5% to 7% per year through at least 2024. It already has most of the investments needed to deliver on that growth rate. The pipeline giant has many ways to deploy its excess capital, including making acquisitions, securing additional expansion projects, and repurchasing shares.
Meanwhile, the company's post-2024 growth is becoming increasingly visible. Both T-North and Woodfibre LNG will come online in that timeframe. Meanwhile, it has an offshore wind farm in Europe with a 2025 in-service date and some gas transmission projects coming online in 2025. If it can continue securing needle-moving projects like T-South and some of the others it has under development, Enbridge will have the fuel to continue growing its cash flow at an attractive rate in 2025 and beyond. That would enhance the company's ability to continue increasing its big-time dividend for several more years.
This high-yield dividend stock is heading higher
Enbridge has done an excellent job growing its dividend over the years. That growth streak isn't likely to end soon, given its growing backlog of expansion projects. That makes it an excellent option for investors seeking a big-time passive income stream that should steadily rise in the coming years.