Canadian energy infrastructure giant Enbridge's (ENB 1.71%) share price gains over the past five years don't look too impressive, but they also don't provide the full picture of how its investors have done. That's because the midstream company pays a generous dividend that, at current prices, yields 6.5%. That number changes the math in an important way when you are looking at its overall performance for its shareholders.
Less than inspiring?
If you invested $10,000 in Enbridge five years ago, those shares would be worth roughly $12,700 today. The same investment in the Vanguard Energy ETF (VDE -0.22%) would be worth just $10,750, which makes Enbridge look pretty good. And yet $10,000 put into the S&P 500 Index would be worth around $15,450 today. That makes Enbridge look relatively bad.
But another couple of comparisons need to be made before you call this match. Enbridge's dividend yield is, as mentioned, around 6.5% today. The Vanguard Energy ETF's yield is roughly 4%. And the S&P 500's yield is a fairly miserly 1.6%. Although all three of those yields have gone up and down over the past five years, the spread across them has remained fairly consistent.
ENB Dividend Yield data by YCharts.
The total return metric factors those dividends (with their widely different yields) into the equation for investors, assuming that dividends are reinvested in new shares as they are received. The numbers that result in this case are very different.
A worthwhile boost
Starting from the bottom of the pack, when you include dividends, the Vanguard Energy ETF's gain over the past five years goes from $750 to $3,100, turning the original $10,000 investment into $13,100. A $10,000 investment in the S&P 500 Index would have grown into $16,850 from a total return perspective. Even its small yield improved its performance in a notable way.
But the real showstopper is Enbridge and its lofty yield. With dividends reinvested, a $10,000 investment five years ago would have grown to $17,670. That's a gain of nearly $5,000 more thanks entirely to the dividend.
Go back and review the comparison between the three in that light, and Enbridge is the top dog.
ENB Total Return Level data by YCharts.
But can investors rely on Enbridge's dividend? It would appear so. For starters, the Canadian energy giant has increased its payouts annually for 28 consecutive years. Its dividend is comfortably within its distributable cash flow target payout range of 60% to 70%. And it has an investment-grade rated balance sheet.
There's even a further backstop here. The company expects to produce at least $3 billion in "discretionary" capital that is earmarked for capital investment, acquisitions, debt reduction, and share buybacks. Those are all good things, but some of that cash, in a worst-case scenario, could also be used to support the dividend.
It's also important to consider the company's business model. While the financial performances of energy producers are closely tied to the movements of oil and natural gas prices, Enbridge's portfolio of infrastructure assets (it helps move energy commodities around the world) largely generates revenue from fee-based contracts. So it tends to produce highly reliable cash flows even during energy price downturns because its fees are based on volumes, not commodity prices. So, all things considered, it looks like there's no particular reason for investors to worry about the sustainability of Enbridge's high-yielding payouts right now.
The full picture
When looking at high-yield stocks like Enbridge, share price movements alone don't tell the whole story. Sure, if you are using your dividend stocks to produce cash flow to cover your expenses, you won't be reinvesting those payments. But examining total return is still the best way to compare a dividend payer like Enbridge to other investment choices. And, as this comparison shows, a high yield can lead to perhaps surprisingly robust total returns.
