If you are trying to set up a portfolio that will provide you with a lifetime of income, you'll want to take a close look at Enbridge (ENB 1.57%). Not only does this giant North American midstream company offer a compelling 6.1% dividend yield, but it is making moves today to ensure that it can continue to grow, even as the world shifts toward cleaner energy sources.
Here's why I'm predicting good things for Enbridge and its shareholders in the decades ahead.
What does Enbridge do?
Enbridge gets lumped in with the midstream sector, which is completely reasonable. Roughly 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) comes from energy infrastructure assets like pipelines. These are the vital arteries that move carbon fuels, and the things into which they get turned, around the world.
It is a very consistent business because Enbridge largely charges fees for the use of these assets. The volume that moves through its system is more important than the price of oil or natural gas. Demand for energy tends to remain high even when energy prices are low.
Image source: Getty Images.
Another 22% of EBITDA comes from regulated natural gas utilities that Enbridge owns. These businesses provide reliable cash flows too, because rates and capital spending plans have to be approved by the government. Although slow and steady growth is the norm for regulated utilities, that's not a bad thing for investors who place a high value on dividend consistency.
The remaining 3% or so of EBITDA comes from clean-energy assets that Enbridge owns. This segment is small, but clearly allows management to invest in the long-term future of the broader energy sector. The best part, however, is probably the fact that the cash flow generated from the carbon energy side of the business is basically funding the company's investments in things like offshore wind farms.
Why buy Enbridge today?
For a dividend investor, the big draw with Enbridge today is pretty obviously that 6.1% dividend yield. The S&P 500 is only yielding around 1.2%, and the average energy stock is offering just 3.3%. Clearly, if you are looking to generate as much income as possible with your portfolio, Enbridge is an attractive energy option.
NYSE: ENB
Key Data Points
But there's more to this story. Enbridge has increased its dividend annually for 30 consecutive years (in Canadian dollars). That's an impressive track record, given the inherent volatility investors usually expect from the energy sector.
Clearly, Enbridge has proven it believes in rewarding investors well for sticking around. Helping on that front is the company's investment-grade-rated balance sheet, which gives it the wherewithal to muddle through hard times while continuing to pay its dividend.
However, the most important issue is one many investors may overlook. Enbridge's stated goal is, basically, to provide the world with the energy it needs.
Years ago, that meant a heavy focus on oil pipelines. As the world shifted toward cleaner-burning natural gas, it meant starting to build up natural gas exposure (with both pipelines and regulated natural gas utilities). And it has also meant dipping a toe directly into the clean energy space, an area where Enbridge has been building expertise and exposure for years.
Enbridge isn't resting on its laurels, hoping for the best. It is actively adjusting its portfolio to keep up with the changing world.
Put it all together, and Enbridge is a winner
A financially strong and diversified energy business that has a proven track record of rewarding investors with dividend growth: There's a lot to like about Enbridge beyond just the lofty dividend yield.
And the fact that Enbridge is specifically attempting to update its portfolio so it best serves the world's energy needs suggests that you can buy this high-yield energy giant today and be comfortable that you'll have set yourself up for a lifetime of reliable income.
