Enbridge (ENB -1.21%) has paid one of the most durable dividends in the energy sector. The Canadian energy infrastructure giant is approaching its seventh decade of paying dividends. It has increased its payout annually for the last 28 years, a remarkable track record in the volatile energy sector.
The company's dividend (which yields a hefty 7.6% these days) remains on an extremely firm foundation. That was abundantly clear in its recent third-quarter earnings report. Because of that, it's a no-brainer for those seeking a durable income stream.
Trending toward the low end
Enbridge generated 2.6 billion Canadian dollars ($1.9 billion) of distributable cash flow during the third quarter. That's up a solid 4% from the year-ago period. It pushed the company's year-to-date total to over CA$8.5 billion, or CA$4.20 per share ($6.2 billion or $3.07 per share).
The company has benefited from record volumes flowing through three of its pipeline systems. It has also gotten a boost from acquiring additional interests in two pipeline systems. Those drivers have helped more than offset higher financing costs, a lower interest in its natural gas liquids-focused partnership, and some other headwinds.
Enbridge's strong cash flow enabled it to easily cover its high-yielding dividend. At CA$0.8875 per share ($0.65 per share) each quarter, its dividend payout ratio has averaged 63% this year. That's toward the low end of its 60% to 70% target range. That low payout ratio enables it to retain substantial cash flow to fund its continued expansion.
The company further complements its strong cash flow with a healthy balance sheet. It expects to end the year with a leverage ratio below its 4.5 to 5.0 times target range. That's partially due to selling stock to help pre-fund its pending acquisitions of three natural gas utilities from Dominion Energy. Even without that additional equity, the company exited the quarter with leverage at the low end of its target range. That gives it lots of financial flexibility.
Right on track
Enbridge's pipeline and utility businesses generate very stable results in various market environments. That's clear in its track record of achieving its annual financial guidance. It's currently on track with its 2023 plan for earnings and cash flow, which would be its 18th straight year of achieving its guidance:
Image source: Enbridge.
As that slide shows, the company's diversified asset base produces very predictable earnings supported by regulated rate structures and long-term, fixed-rate contracts.
More growth ahead
Enbridge's investments to grow its portfolio of pipeline and utility assets steadily increase its cash flow. The company has made excellent progress on its expansion strategy this year. It pounced on what CEO Greg Ebel called a "rare and unprecedented opportunity" to acquire three large U.S. natural gas utilities from Dominion at a historically attractive price. It expects to close the $14 billion deal next year, which will boost its earnings and enhance its medium-term growth profile.
That deal will add about $3.7 billion of capital spending to its backlog over the next three years. This addition increased the company's total secured capital project backlog to CA$24 billion ($17.5 billion). Those projects will grow its cash flow through 2027. They support Enbridge's view that it can increase its earnings by 5% annually over the medium term. That should give it more fuel to grow its dividend.
The company has also secured a few smaller bolt-on acquisitions that will supply incremental earnings while enhancing its operations. Enbridge recently closed its acquisition of Aiken Creek Gas Storage to bolster its Western Canadian liquified natural gas (LNG) export strategy. It also agreed to nearly double its interest in two German offshore wind energy projects. Finally, it signed a deal to purchase seven landfill-to-renewable natural gas assets. Those last two deals will bolster the company's renewable energy platform.
A rock-solid income stock
Enbridge's low-risk pipeline utility business model generates very steady cash flows. It also has a strong balance sheet. Those features enable it to pay a healthy dividend that it steadily grows. That makes it a no-brainer option for those seeking an attractive income stream.
