I'm on a quest to increase my passive income so that it can eventually cover my expenses. That's leading me to load up on high-quality dividend stocks. I target companies that offer an above-average yielding payout that will grow in the coming years.
Enbridge (ENB 0.82%) certainly fits the bill. The Canadian energy infrastructure giant currently offers a dividend yield above 7%, which is several times higher than the S&P 500's dividend yield of around 1.7%. Meanwhile, the company has grown its payout for 28 straight years, a streak unlikely to end anytime soon. That's leading me to continue buying more shares to boost my dividend income.
NYSE: ENB
Key Data Points
An extremely secure high-yielding payout
The main draw of Enbridge is its generous dividend. While higher-yielding payouts are often at higher risk of reduction, that's not a concern with Enbridge. The company's low-risk pipeline-utility business model generates very stable cash flows backed by long-term contracts and government regulate rate structures. It has minimal commodity price and volume risk.
Meanwhile, the company pays out a reasonable portion of its stable distributable cash flow (DCF) via the dividend (60%-70%). That enables it to retain substantial cash to fund its continued growth.
Enbridge also has a strong investment-grade balance sheet. It targets a leverage ratio of 4.5 to 5.0. Its leverage ratio was 4.6 at the end of the first quarter. That gives it additional financial flexibility to fund growth.
The company's combination of stable cash flows, a reasonable dividend payout ratio, and strong balance sheet help put its big-time payout on a very firm foundation.
More growth ahead
Enbridge's retained cash flows after paying the dividend and balance sheet capacity enable it to invest up to 6 billion Canadian dollars ($4.4 billion) each year on organic expansion projects and tuck-in acquisitions. The company currently has CA$17 billion ($12.5 billion) of commercially secured expansion projects lined up through 2028. In addition, it has several billion dollars of additional organic expansion projects under development.
The company has projects across all four core businesses (liquids pipelines, gas transmission, gas distribution & storage, and renewables). Notable projects include:
- Its T-North and T-South natural gas pipeline expansions in Canada.
- Its investment in Woodfibre LNG.
- Several offshore wind farms in Europe.
Most of the company's expansions support lower carbon energy, like natural gas and renewables. Meanwhile, it has several new energies projects under construction and in development, including renewable natural gas, blue ammonia, and carbon capture and storage.
The company's expansion project backlog and development pipeline give it lots of visibility into future growth. Enbridge expects to grow its DCF per share at around a 3% compound annual rate through 2025 as modest tax legislation headwinds offset some organic growth. Post-2025, the company expects to deliver DCF per share growth of around 5% annually. This outlook drives Enbridge's view that it can increase its dividend by as much as 5% per share each year over the medium term.
Enbridge's growth-related investments will make its business more sustainable over the longer term. The company has slowly shifted its earnings mix from oil to lower carbon sources like natural gas and renewables. All but $300 million of its current backlog consists of lower-carbon investments. Meanwhile, it sees the potential to invest upwards of CA$5 billion ($3.7 billion) annually on organic lower-carbon projects across gas transmission and midstream, gas distribution, renewables, and new energies. These investments will help Enbridge generate stable and sustainable cash flows as the world slowly shifts toward cleaner alternatives.
A supremely solid and steadily rising payout
Enbridge has exactly what I'm seeking in a dividend-paying stock. It offers an above-average yielding payout backed by solid financials that will likely continue growing. That's why I continue loading up on its shares when I've got some cash to spare.
