The stock market has plunged nearly 15% from its recent high due to concerns that tariffs could cause a recession. It could continue sinking if those fears turn into reality. That's because economic downturns can cause corporate profits to plummet.
However, some companies are better able to weather economic storms than others. Enbridge (ENB +1.00%) has proven its durability over the decades. The pipeline and utility giant currently pays a dividend yielding nearly 6%, which is one of the many reasons it can help shelter your portfolio from any continued downdraft.
NYSE: ENB
Key Data Points
As resilient as you'll find
Enbridge is an energy infrastructure behemoth. It operates the longest and most complex crude oil and liquids transportation system in North America. It also has leading natural gas transmission and distribution franchises. On top of that, it has a growing renewable energy platform.
One common thread that runs through the company's vast network of critical energy infrastructure is the durability of the cash flows its assets produce. About 98% of its earnings come from cost-of-service agreements or long-term, fixed-rate contracts, which produce very predictable cash flows. Enbridge's cash flow is so low-risk and predictable that it has achieved its annual financial guidance for 19 straight years. That period includes two severe recessions and several other periods of market turmoil.
The overall stability of its cash flow has enabled Enbridge to pay a very durable dividend. The energy infrastructure giant has paid dividends for 70 straight years. Meanwhile, it has increased its dividend for 30 years in a row. That's impressive, considering we've experienced several recessions over the last three decades.
Enbridge supports its high-yielding dividend with a very strong financial profile. It pays out a reasonable 60% to 70% of its stable cash flow in dividends. That gives it a big cushion while enabling Enbridge to retain billions of dollars in excess cash flow each year to fund its continued growth. The company also has a strong investment-grade-rated balance sheet.
Resilient growth ahead
Enbridge has billions of dollars in annual investment capacity between its post-dividend excess free cash flow and balance sheet capacity. It can use its financial flexibility to invest in organic expansion projects, make accretive acquisitions, and opportunistically repurchase shares. It also has the option to hold back capacity by strengthening its balance sheet to enhance its future flexibility.
The company currently has a multibillion-dollar backlog of commercially secured capital projects. These include oil and gas pipeline expansions, utility growth projects, and new renewable energy-generating capacity. It has projects with in-service dates through 2029. That gives it lots of visibility into its earnings growth through the end of the decade.
Meanwhile, the company is pursuing an even larger set of future growth projects. It sees billions of dollars of investment potential across its liquids pipelines, gas transmission, gas distribution, and renewable energy franchises. It also sees an abundance of lower-carbon energy opportunities beyond renewable energy emerging toward the end of this decade and into the 2030s, including carbon capture and storage, and blue ammonia production and export.
Enbridge also has the financial flexibility to make acquisitions as opportunities arise. It can make smaller bolt-on deals (it bought two marine docks and a 15% stake in a gas pipeline system last year) and close larger-scale transactions (it closed the acquisition of three leading gas utilities last year for $14 billion).
Enbridge's secured projects give it a lot of visibility over the next several years. The company currently expects to grow its cash flow per share at a 3% compound annual rate through next year. Growth should accelerate to around 5% annually after 2026 as its cash tax rates level out. That should support dividend growth in the 3% to 5% annual range.
A portfolio stabilizer
Enbridge might not be the most exciting company in the world. However, it generates very durable cash flow that it uses to pay an attractive dividend and invest in growing its business. That high-yielding payout will provide investors with a tangible return during periods of market turmoil. Meanwhile, its stable cash flows and visible growth profile should also help reduce Enbridge's stock price volatility when the market is plummeting.
All this means it's a great stock to buy to help provide your portfolio with some shelter during market storms.
