Enbridge (ENB 0.13%) is one of the most durable dividend stocks in the energy sector. The Canadian pipeline and utility company has paid dividends to its investors for more than 69 years. It has increased its payment for the last 29 years in a row. That's impressive, considering all the volatility in the energy sector over the years.
The energy company has plenty of fuel to continue paying dividends. With a dividend yield above 6.5% and more growth ahead, it's an excellent option for those seeking a very bankable income stream.
NYSE: ENB
Key Data Points
Built to be reliable
Enbridge has four core franchises: liquids pipelines, making up 50% of its adjusted EBITDA; gas transmission and midstream, 25%; gas distribution and storage, 22%; and renewable power, 3%. They provide the company with very predictable earnings backed by cost-of-service agreements and long-term contracts, accounting in total for 98% of its EBITDA. That predictability has been on full display over the last 18 years. Enbridge has achieved its financial guidance each year despite two major recessions and two additional periods of oil market turbulence.
The pipeline and utility company pays out 60% to 70% of its stable cash flow in dividends each year. That's a conservative payout ratio for a company with such stable cash flow. It gives Enbridge ample room for error while enabling the company to retain meaningful cash flow to fund expansion projects and bolt-on acquisitions.
Enbridge also has a rock-solid financial foundation. Thanks to its strategy of using long-term, fixed-rate debt and keeping its leverage ratio low, it has an investment-grade credit rating. It ended the second quarter with a 4.7 leverage ratio, which was in the middle of its 4.5-to-5.0 target range. It sees its leverage ratio trending toward the lower end of that range next year as it captures the full benefits of its recent natural gas utility acquisitions and maintains its current capital spending range.
These features put Enbridge's high-yielding dividend on a very sustainable foundation. It generates enough post-dividend free cash flow to fund a significant portion of its secured capital program. Meanwhile, it has the balance sheet capacity to fund the remainder with room to spare. That provides additional flexibility to capitalize on future growth opportunities as they emerge.
The fuel to grow
Enbridge ended the second quarter with $24 billion Canadian ($17.8 billion) of secured capital projects in its backlog. Those projects include oil terminal expansions, new gas pipelines, natural gas utility expansions, and renewable energy projects. The company expects these projects to enter commercial service through 2028. That provides Enbridge with tremendous visibility into its future growth.
Those secured capital projects should grow the company's EBITDA by around 3% per year through 2026. Meanwhile, cost savings and optimizations will add another 1% to 2% to its bottom line each year. On top of that, Enbridge has meaningful additional investment capacity it could deploy to add another 1%-plus to its annual earnings growth rate. It sees the potential to continue growing its earnings by around 5% annually after 2026, given the capital projects it has under construction and in development.
The company's visible earnings growth drives its view that it should have ample fuel to continue increasing its dividend. It could raise its payment by up to 5% annually over the medium term.
Plenty of power to continue paying dividends
Enbridge has been one of the most reliable dividend stocks in the energy sector over the decades. That trend should continue in the future. The company has a very low-risk business model and visible growth prospects, so it should have no trouble paying dividends in the future, with its payout likely to continue rising for the next several years. That makes it a great stock to buy for those seeking a very sustainable stream of dividend income.
