Enbridge (ENB -1.21%) is a well-oiled machine. The Canadian energy infrastructure giant recently closed the books on 2023. It was another solid year for the pipeline and utility company. Enbridge achieved its financial guidance for its 18th straight year. On top of that, it made excellent progress on its strategic priorities.
The company's remarkable consistency and low-risk business model make it a "first-choice investment opportunity," according to CEO Greg Ebel. Here's a look at why income-focused investors should consider making it one of their top choices for generating passive income.
Another solid year
"I'm pleased to report another year of strong safety, operational, and financial performance across the enterprise," stated CEO Greg Ebel in the fourth-quarter earnings press release. "Despite geopolitical instability, persistent inflation, and rising interest rates," Enbridge delivered its 18th straight year of achieving its financial guidance:
Image source: Enbridge.
The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 6% from 2022's level. Meanwhile, distributable cash flow was up by about 3% (and 1% on a per-share basis after accounting for the dilution of issuing new shares to pre-fund its gas utility acquisitions). That growth enabled the company to raise its already high-yielding dividend by another 3.1% for 2024, its 29th straight year of increasing the dividend.
Meanwhile, Enbridge made excellent progress on its strategic priorities of growing its stable earnings (especially from lower carbon sources) while maintaining a firm financial foundation. Ebel highlighted: "In 2023, we announced approximately 23 billion Canadian dollars ($17.1 billion) of attractive acquisitions, placed CA$2 billion ($1.5 billion) of secured capital into service, and sanctioned CA$10 billion ($7.4 billion) of new organic projects. In addition, we announced CA$3.1 billion ($2.3 billion) of asset sales at attractive valuations and secured approximately 85% of the CA$19.1 billion ($14.2 billion) of required financing for the gas utility acquisitions." The company ended the year with a 4.1 leverage ratio, which is below its 4.5-5.0 target. That gives it the flexibility to fund its acquisitions of three natural gas utilities from Dominion, which it expects to close this year.
Plenty of fuel to continue growing
Enbridge's investments position it to continue growing in 2024 and beyond. The company anticipates that its adjusted EBITDA and distributable cash flow will rise at a low-single-digit rate this year, fueled by organic expansion projects and acquisitions. Its current outlook doesn't include any impact from its Dominion Energy deals since it doesn't know when those transactions will close. However, they should supply the company with some incremental earnings and cash flow this year, with a bigger boost expected in 2025.
Meanwhile, its growing list of expansion projects will help drive growth for the next several years:
Image source: Enbridge.
As that slide shows, the company enters 2024 with CA$24 billion ($17.8 billion) of secured capital projects, the bulk of which will enter service starting in 2026. This backlog helps drive Enbridge's view that it can grow its adjusted EBITDA and distributable cash flow by around a 5% compound annual rate over the medium term.
Enbridge will continue to have the financial flexibility to supplement organic growth with acquisitions as compelling opportunities emerge. While the Dominion Energy deals were the headliners last year, Enbridge also made several tuck-in acquisitions, including buying two natural gas storage operations, several landfill-to-renewable natural gas facilities, and an additional interest in some offshore wind energy facilities in Europe.
Those investments have the company on track to get about half its adjusted EBITDA from lower carbon energy (natural gas and renewables). That mix should continue to shift toward lower carbon energy in the future as Enbridge executes its current capital program and makes additional acquisitions.
A top-tier income stock
Enbridge has consistently achieved its financial guidance and increased its dividend. That's mainly due to its low-risk business model and strong financial profile. Those features and its visible capital project backlog put it in an excellent position to continue growing. That's why it's a top choice for investors seeking an attractive and steadily rising income stream.
