Enbridge (ENB -1.21%) has been a masterful dividend stock over the decades. The Canadian pipeline and utility company has paid dividends for nearly 70 years and has increased the payment for 29 straight years, growing it at an impressive 10% compound annual rate. While dividend growth has slowed in more recent years (it gave investors a 3.1% raise in 2024), it has plenty of power to continue increasing its payout in the future.
The energy infrastructure giant's dividend currently yields a monster 7.9%. That big-time payout is on an increasingly sustainable foundation, which makes it a fantastic option for those seeking a very bankable income stream.
A super-safe income stream
Enbridge is a financial fortress that generates extremely durable cash flow. It gets 98% of its earnings from cost-of-service agreements or long-term contracts.
Meanwhile, more than 95% of its customers have investment-grade credit ratings. It also has a diversified business model with four core franchises (liquids pipelines, natural gas transmission, natural gas distribution, and renewables). These factors give it a very low-risk cash-flow profile.
Enbridge is in the process of further reducing its earnings volatility by acquiring three natural gas utilities from Dominion Energy for $14 billion. That deal will also increase its earnings from lower carbon energy (natural gas and renewables) to 50% of the total, enhancing the long-term sustainability of its cash flow.
The company pays out a reasonable percentage of its stable cash flow in dividends (it targets 60%-70%). That enables it to retain a meaningful amount of cash to reinvest in new growth opportunities.
Enbridge also has an investment-grade balance sheet backed by a low leverage ratio. It entered 2024 with a 4.1x leverage ratio, which is below the low end of its 4.5x-5x target range as it pre-funded much of the capital required for its Dominion Energy acquisition. Leverage will still be solid at 4.5x after closing that deal, giving the company lots of financial flexibility to continue making new investments.
Enbridge's low-risk business model puts its dividend on a very strong foundation. It has the financial flexibility to invest in growing its business while steadily increasing its payout.
The fuel to grow
The company has lots of fuel to continue growing its dividend as it enters 2024 with 24 billion Canadian dollars ($17.8 billion) of commercially secured expansion projects in its backlog. The vast majority of those projects support lower carbon energy.
Its projects run the gamut from new natural gas pipelines, a liquified natural gas (LNG) export facility investment, renewable natural gas projects, natural gas utility expansions, and new renewable energy projects. The company expects these projects to enter service through 2028, giving it lots of visibility into future growth. It also has several other expansion projects under development that could enhance and extend its growth outlook.
In addition to organic expansion, Enbridge makes acquisitions to enhance its growth. On top of its pending Dominion Energy deals, Enbridge acquired CA$3 billion ($2.2 billion) of other assets last year, including buying several renewable natural gas facilities in the U.S., increasing its stake in two offshore wind farms in Europe, and acquiring a couple of gas storage facilities. The company has the financial capacity to fund organic expansion projects and continue making acquisitions.
Enbridge estimates it can fund the investments needed to deliver around 5% annual earnings growth over the midterm. Given its solid dividend payout ratio (65% in 2024), Enbridge could grow its dividend by around that same yearly rate in the coming years.
A magnificent income investment
Enbridge is a prolific dividend stock. It has a high-yielding payout, backed by very durable cash flow and a rock-solid financial profile. It also has lots of growth coming down the pipeline and the financial flexibility to fund its continued expansion. These factors make it an excellent option for those seeking a super-safe income stream.
