Enbridge (ENB -1.21%) already has one of the safest dividends in the energy patch. The energy-infrastructure giant arguably has the lowest-risk business model in the sector. It also has a very strong financial profile.

However, that hasn't stopped the company from further enhancing its dividend safety. It recently made another move to ensure its 7.5%-yielding dividend remains on rock-solid ground.

Drilling down into the deal

Enbridge has agreed to sell its 50% interest in the Alliance pipeline and 42.7% stake in the Aux Sable natural gas liquids (NGL) complex to fellow Canadian energy infrastructure company Pembina Pipeline. The deal will bring in 3.1 billion Canadian dollars ($2.3 billion) in cash. Pembina is the current operator of Aux Sable and Enbridge's partner on Alliance.

That sales price values Alliance at 11 times its projected earnings before interest, taxes, depreciation, and amortization (EBITDA) for next year. Meanwhile, the deal puts Aux Sable's value at around seven times EBITDA. Those are solid valuations. For example, NextEra Energy Partners recently agreed to sell its Texas natural gas pipeline portfolio (STX Midstream) to Kinder Morgan for 10 times adjusted EBITDA, while Aux Sable's seven times EBITDA multiple is in line with the valuations of other commodity price-exposed businesses.

The sale is an important part of Enbridge's plan to fund its acquisition of three natural gas utilities from Dominion. It's paying CA$19 billion ($14.2 billion) for the businesses, which it's financing by assuming debt, issuing stock, securing additional debt financing, and selling assets. It has already secured most of that financing and has multiple options to fund the remaining portion, including other capital-recycling transactions.

Reducing risk

The Pembina deal is Enbridge's latest capital-recycling transaction. It has sold CA$14 billion ($10.4 billion) of assets since 2018. These deals have optimized its portfolio, enhanced its cash-flow profile by reducing its commodity-price exposure, and bolstered its financial flexibility.

A key focus of its strategy has been to sell assets exposed to commodity-price risk and recycle that capital into lower-risk assets. For example, in 2018, the company sold its Canadian gathering and processing (G&P) business to Brookfield Infrastructure for CA$4.3 billion ($3.2 billion). That sale reduced its exposure to volatile natural gas prices while advancing its strategy to become a pure-play, regulated pipeline and utility company. The company continued its shift away from assets with commodity-price exposure last year by trading some of its interest in DCP Midstream (an entity with G&P and NGL businesses) for an increased stake in the Gray Oak oil pipeline in a deal with Phillips 66.

The Pembina deal continues the company's shift toward lower-risk assets. It's selling its stake in Aux Sable (which has commodity-price exposure) to help fund its deal for three regulated natural gas utilities. That will further enhance the stability of its cash flow, with more than 98% of its EBITDA coming from cost-of-service arrangements or long-term contracts. The deal also ensures that Enbridge maintains a strong balance sheet. The company expects its leverage ratio to be near the low end of its 4.5 to 5.0 times range next year.

The company's stable cash flows and strong balance sheet give it the financial flexibility to continue paying a growing dividend while investing in expanding its operations. Enbridge has paid dividends for over 69 years. It recently delivered its 29th consecutive annual-dividend increase, boosting its payout by 3.1% for 2024. The company's low-risk business model and visible growth position it to continue increasing its high-yielding payout.

A low-risk, high-yielding dividend stock

Enbridge continues to take steps to enhance its already low-risk business model. That's putting its already rock-solid dividend on an even firmer foundation. It makes the pipeline and utility giant an excellent option for those seeking a very safe income stream.