I recently bought a few more shares of Enbridge (ENB -1.21%). The main draw is the Canadian energy infrastructure giant's massive dividend. Enbridge currently yields 7.6%.

Here's why I can't stop buying Enbridge these days.

A very sustainable payout

Enbridge pays a very low-risk, high-yielding dividend. The pipeline and utility company generates very stable cash flow. Cost-of-service agreements or long-term contracts underpin 98% of its cash flow, leaving it with minimal commodity price risk. Meanwhile, 95% of its earnings come from customers with an investment-grade credit rating, increasing the probability it gets paid.

Further, a growing portion of its cash flow comes from lower-carbon energy sources, like natural gas and renewables, enhancing its ability to prosper in the energy transition. This low-risk commercial profile provides Enbridge with durable cash flows that have proven to withstand the ebbs and flows of global energy markets. 

Enbridge pays out a reasonable portion of its steady cash flow in dividends. The company targets a payout ratio between 60% to 70% of its distributable cash flow. That gives it a nice cushion while allowing it to retain about 4 billion Canadian dollars ($2.9 billion) in cash each year to fund new investments.

The company also has a solid investment-grade balance sheet backed by a reasonable leverage ratio in the range of 4.5 to 5.0. That gives it about CA$2 billion ($1.5 billion) of annual debt capacity to fund new investments while remaining within its target range.

Enbridge's combination of stable cash flow, a healthy dividend payout ratio, and a relatively low leverage level put its big-time dividend on a very sustainable foundation.

The power to continue growing

Enbridge offers more than just a bond-like income stream. The company also has solid growth prospects. That should enable it to increase its dividend and provide some share price appreciation potential.  

The company expects to increase its earnings by about 5% per year over the medium term. Three factors drive that view:

  • Optimizations and toll escalation: Enbridge expects earnings from its existing assets to grow by 1% to 2% per year as it optimizes its operations and benefits from contractual rate escalation clauses.
  • Secured organic growth: The company has CA$19 billion ($14 billion) of organic expansion projects underway that should come online through 2028. These projects include natural gas pipeline expansions, a liquified natural gas export facility investment, and new renewable energy projects. They should increase its earnings by about 1% to 2% annually.
  • Deploying excess investment capacity: Enbridge expects to have significant additional investment capacity after funding its currently secured expansion projects. That gives it the flexibility to invest in additional organic expansions, make tuck-in acquisitions, and opportunistically repurchase shares. These incremental investments could grow its earnings per share by around 2% per year.

Enbridge's future investments will predominantly be to support lower-carbon energy. The company's secured project backlog features several European offshore wind farms, natural gas utility expansions, renewable natural gas (RNG) projects, and natural gas pipeline and export capacity projects. Meanwhile, its development pipeline features additional similar projects and new energy opportunities like carbon capture and storage, blue ammonium production and export, and blue and green hydrogen.

The company's growing earnings should support a rising dividend. Enbridge has increased its payout for 28 straight years and could grow it by around 5% annually over the medium term. Meanwhile, its focus on lower-carbon energy should give it the fuel to continue increasing its payout for years to come. 

A low-risk, high-return investment

Enbridge has a very low-risk business model. It has limited commodity price risk, enabling it to generate very stable cash flow. Meanwhile, its reasonable dividend payout and leverage ratios give it lots of financial flexibility to fund new investments, primarily to support lower-carbon energy.

That should enable Enbridge to steadily grow its earnings and high-yielding dividend. This powerful combination could give Enbridge the fuel to produce double-digit annual total returns. That high probability of earning an attractive passive income stream and some share price appreciation potential is why I continue to gobble up shares of Enbridge these days.