Enbridge (ENB 0.39%) has been a magnificent investment over the years. The Canadian energy infrastructure company has increased its dividend for 28 straight years. That has allowed it to generate attractive total returns for investors.
Since 2008, Enbridge has produced an average annual total return of 11.7%, outpacing the S&P 500's 11% total return during that time frame.
The company recently added even more fuel to its growth engine, giving it the resources to keep increasing its 7%-yielding dividend. That further enhances the investment thesis.
NYSE: ENB
Key Data Points
Adding even more power
Enbridge recently said that it secured several new accretive investments. These projects include:
- Adding 2.4 billion Canadian dollars ($1.8 billion) of new gas-transmission modernization and utility capital projects.
- Plans to build the Enbridge Houston Oil Terminal (EHOT). The project will cost $240 million and have the initial capacity to store 2.5 million barrels of oil, with the potential for up to 15 million barrels in the future.
- Agreeing to acquire Tres Palacios Gas Storage from Crestwood Equity Partners and Brookfield Infrastructure for $335 million. The acquisition furthers its U.S. Gulf Coast LNG export strategy while enabling Crestwood and Brookfield to recycle capital and advance their core strategies.
- Agreeing to invest $80 million into Divert, a renewable natural gas (RNG) infrastructure company.
- Plans to build a natural gas pipeline to support ArcelorMittal's strategy to change the way it makes steel at a plant in Canada, converting from coal to natural gas.
The company plans to invest CA$3.3 billion ($2.4 billion) across these initiatives. They add to the CA$8 billion ($5.9 billion) of new investments it secured last year.
Enbridge's backlog now features CA$17 billion ($12.5 billion) of investment across 15 projects in all four of its business lines (liquids pipelines, gas transmission and midstream, gas distribution and storage, and renewable power). The company expects these projects to enter service through 2028, giving it lots of visibility into future growth.
A reacceleration ahead
Enbridge estimates these investments will allow it to grow its EBITDA by a 4% to 6% compound annual rate through 2025. Meanwhile, the company estimates its distributable cash flow will grow by an average of 3% per share each year.
CEO Greg Ebel said in a press release unveiling the company's updated forecast, "This outlook will allow us to comfortably extend our long track record of ongoing annual dividend growth."
Meanwhile, due to the timing of its major capital projects, its longer-term outlook is even brighter. The company has several large-scale projects (T-North Expansion, Woodfibre LNG, and T-South Expansion) that will enter service from 2026 through 2028. That drives the company's view that it can deliver an average annual growth rate of 5% post-2025.
Besides the large-scale projects it has already secured, Enbridge has several others in development. Those opportunities span its existing business segments and new energies like RNG, hydrogen, and carbon capture and storage.
The company is currently investing more than CA$600 million ($441 million) in lower-carbon projects through 2025. In the longer term, it sees the potential to invest over CA$1 billion ($740 million) annually. Among its many opportunities is Divert, which has a line of sight to invest in more than CA$1 billion in capital projects in the future.
Enbridge has ample financial flexibility to fund these investments while growing its dividend. The company estimates it will have about CA$6 billion ($4.4 billion) of annual investment capacity. That includes post-dividend free cash flow and borrowing capacity while remaining within its targeted leverage ratio to maintain a strong investment-grade credit rating.
Besides investing in organic growth projects, Enbridge can make strategic asset acquisitions like Tres Palacios and opportunistically repurchase shares. Meanwhile, it can enhance its investment capacity by continuing to recycle capital. Enbridge has sold CA$11 billion ($8.1 billion) of assets since 2018 to upgrade its portfolio.
Plenty of power for attractive returns
Enbridge expects to deliver modest cash flow growth over the next few years before it reaccelerates after 2025. That forecast underpins the company's belief that it can grow its high-yielding dividend by the low- to mid-single digits for several years.
That combination of growth and income should give Enbridge the fuel to produce average annual total returns in the low double digits. This return potential makes Enbridge a great stock to buy and hold for the long term.
