Enbridge (ENB -0.46%) is directly tied to the oil patch, but it isn't the Canadian company's sole focus. And that's one of the reasons investors should take a closer look at this industry giant and its 6.4% dividend yield.
One important area to examine is the small but growing clean energy division. There was big news there recently, with more to come in the next few years.
The foundation
It would be pointless to discuss Enbridge without looking at the fact that oil pipelines make up 58% of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA). Natural gas pipelines add another 26%. So, all in, oil and natural gas pipelines make up a huge 84% of EBITDA. Enbridge is clearly an oil & gas company.
Notably, another 12% of EBITDA comes from a natural gas utility business, which is different from pipelines but similar enough to say that 96% of Enbridge's business is focused on carbon fuels.
Image source: Getty Images.
These businesses are all fee based or regulated, so they produce very reliable cash flows. This revenue structure supports the high yield and helps explain why Enbridge has been able to increase its dividend annually for an impressive 28 years and counting.
Moreover, with around 2 billion Canadian dollars ($1.5 billion) in cash flow above what the company needs to pay its current dividend and fund its business (including scheduled capital investments), that dividend looks very safe.
And yet the most interesting story about Enbridge is to be found in the tiny 4% of EBITDA that is not tied to the carbon space.
Clean energy takes off
Enbridge's clean energy business makes up the rest of its EBITDA. There are a lot of things that fall into that division, but the most notable right now is offshore wind developments in Europe.
The company announced in late 2022 that France's first offshore wind project, Saint-Nazaire, is now fully operational. That $676 million investment was basically right on schedule, and it will start adding to cash flows in 2023.
This investment alone won't move the needle much, with the company projecting roughly flat EBITDA from the clean energy division in 2023. But Saint-Nazaire is the first of several offshore wind projects in Europe. There's another project slated to come on line in 2023 and one expected in 2025, together totaling $1.2 billion worth of capital investment.
Saint-Nazaire is a roughly 480-megawatt project. The next two projects will together add around 1 gigawatt of capacity. Taken together, these three projects are a very big capacity addition.
And it's on top of investments that Enbridge is making in its core North American markets. Which is why investors need to start paying more attention now, as the company starts to ramp up its renewable capacity.
Slow and methodical
Enbridge isn't about to change its stripes overnight, but that's not what investors should want anyway. It is using its core carbon operations, which still generate robust cash flows, to help it expand into an area that's seeing increasing demand, namely clean energy.
The biggest plans it's made on this front (offshore wind in Europe) are starting to bear fruit and will do so for another few years. Ongoing success on clean energy could help to change investors' minds about the company's long-term future even as Enbridge continues to pay a strong and growing dividend.
In other words, dig in now before Wall Street gets wise to the clean energy changes taking shape here.
