Enbridge (ENB +1.47%) has a phenomenal dividend growth track record. The Canadian pipeline and utility company has increased its payout for the last 28 consecutive years, growing it at an impressive 10% compound annual rate over that time frame.
While Enbridge's dividend growth rate has slowed in more recent years due to the company's massive scale, the payout keeps heading higher. That should continue for the foreseeable future. Fueling that view is the company's knack for securing new investments.
NYSE: ENB
Key Data Points
Starting from a strong base
Enbridge entered 2023 with a robust backlog of growth capital projects. The company began with 17 billion Canadian dollars ($12.4 billion) of commercially secured capital projects. That backlog fueled the company's baseline view that it would grow its earnings by 2% to 4% annually over the medium term.
However, thanks to its conservative dividend payout ratio and strong balance sheet, Enbridge has much more investment capacity. The company believes that deploying its excess investment capacity on additional organic expansion projects and tuck-in acquisitions will add around another 2% to its bottom line each year. That drives its outlook that it can grow earnings by around 5% annually over the medium term. The company also believes it can increase its dividend by up to that annual growth rate.
Putting its excess investment capacity to work
Enbridge has been very successful in deploying its excess investment capacity this year. Its biggest move was agreeing to acquire three U.S. natural gas utilities from Dominion Energy for $14 billion. The company expects that the deal will be immediately accretive to its cash flow when it closes next year.
In addition, the acquisition will enhance Enbridge's capital project backlog. It expects to invest CA$1.7 billion ($1.2 billion) annually in low-risk, quick-cycle projects in those utilities over the next three years.
The company followed that up with more deals. It recently agreed to increase its interest in two German offshore wind energy facilities by 24.5%, increasing its stake to 49.9%. It's spending 625 million euros ($670.7 million) in a deal that will also be immediately accretive to its cash flow.
On top of that, it recently agreed to acquire seven operating landfill-to-renewable natural gas (RNG) assets in the U.S. for $1.2 billion. It's funding that deal over the next three years. Like its other acquisitions, this one will provide an immediate boost to its cash flow.
That followed an earlier deal to invest $80 million for a 10% stake in RNG technology company Divert. Enbridge also plans to invest up to $1 billion on wasted-food-to-RNG projects in the U.S. developed by Divert. The company recently approved investing $100 million to build the Longview RNG project.
Longview RNG and the U.S. gas utility capital investments added to Enbridge's expansion project backlog. It now stands at CA$24 billion ($17.6 billion) in projects.
The company also added the $1.2 billion Rio Bravo Pipeline project and the $200 million Enbridge Houston Oil Terminal project this year. It has secured capital projects that will come online through 2028. That gives it lots of visibility into its future earnings growth. Meanwhile, it has several more expansion projects in development that it could add to its backlog in the coming quarters.
The new additions significantly enhance Enbridge's ability to achieve its target of growing earnings and dividends by 5% per year over the medium term. That's a solid growth rate for a company offering a more than 7% dividend yield. It potentially positions Enbridge to deliver annual total returns in the low double-digit range.
Continuing to top off its fuel tank
Enbridge entered this year with an already extensive capital project backlog to drive future growth. It has enhanced its growth profile by securing several acquisitions, led by the Dominion gas utilities. That deal will also bolster its organic project backlog, which it further enhanced by adding several additional capital projects.
As a result, Enbridge has lots of fuel to grow its earnings and dividend in the coming years. That could give it the power to produce attractive total returns, making it a compelling investment opportunity.
