Enbridge (ENB -0.04%) has built one of the most durable businesses in the energy sector, which has enabled the Canadian pipeline and utility company to deliver reliable results over the decades. It has paid dividends for over 70 years, increasing its payment for the past 30 in a row. Meanwhile, it's on track to achieve its annual financial guidance for the 20th straight year.
That dependability should continue in the decades ahead. With its dividend yielding more than 6% these days, Enbridge is an ideal stock to buy and hold for a lifelong stream of dividend income.
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Built for consistency
Enbridge CEO Greg Ebel highlighted the company's investment proposition on its recent first-quarter conference call. He stated:
The consistency and resiliency of our business really came through this quarter with record financial results and execution on our disciplined growth strategy. Our industry-leading low-risk business model delivers in all economic and commodity cycles, and you saw that happen once again in the first quarter.
The company delivered record earnings before interest, taxes, depreciation, and amortization (EBITDA), distributable cash flow per share, and earnings per share (EPS) during that period, which was impressive considering the volatility in the energy markets since the year began. The company benefited from last year's acquisition of three stable U.S. gas utilities and strong volume across its overall business.
Enbridge's diversified, low-risk, utility-like business model generates predictable results. About 98% of the company's cash flow comes from stable cost-of-service frameworks or long-term, fixed-rate contracts with financially strong customers (over 95% have investment-grade credit ratings). Meanwhile, those financial structures have features that protect about 80% of its EBITDA from inflation.
The company's low-risk business profile provides a strong foundation for growing shareholder value. Ebel highlighted the company's "first choice value proposition" on the call, which he noted "has delivered strong double-digit shareholder returns over the past 20 years through thick and thin, up cycles and down cycles." He stated that the company's "financial flexibility allows us to grow our business and sustainably return capital to shareholders," which it has done by increasing its dividend for 30 straight years.
Ample fuel to continue growing the dividend
Enbridge's base business will continue generating significant free cash flow. The company aims to pay out 60% to 70% of its stable and predictable cash flow to investors in dividends. That enables it to retain billions of dollars in excess free cash flow each year to fund its continued expansion. Add in the capacity on its strong investment-grade balance sheet, and the company "can now self-equity fund $9 billion-$10 billion Canadian dollars ($6.4 billion-$7.2 billion) of organic growth projects annually," commented CFO Pat Murray on the first-quarter call.
Enbridge ended the first quarter with a secured growth backlog of CA$28 billion ($20 billion) of projects it expects to complete by the end of 2029. Those projects span its four core franchises (liquids pipelines, gas transmission, gas distribution, and renewable power). Murray noted that at its current run-rate, "[W]e expect to deploy $8 billion-$9 billion ($5.7 billion-$6.4 billion) per year toward that secured growth projects."
Murray remarked, "That leaves us with an additional $1 billion to $2 billion ($700 million-$1.4 billion) that can be opportunistically allocated, whether that be sanctioning new strategic projects, accretive tuck-in M&A [mergers and acquisitions] such as the 10% acquisition of Matterhorn, or reducing debt." It spent about $300 million to buy that stake in the Matterhorn Express Pipeline, which transports gas out of the Permian Basin to the Gulf Coast region.
Meanwhile, Enbridge has another CA$50 billion ($35.7 billion) in additional expansion opportunities under development across its four franchises. The company plans to be selective, "prioritizing the highest returning and most strategic projects," stated Murray.
The company's combination of stable earnings from its base business, visible earnings growth from its secured backlog, and additional investment capacity supports its long-term growth outlook. Ebel stated on the call, "We expect to support continued dividend growth by growing our business by 5% per year through the end of the decade."
Meanwhile, given its massive opportunity set and the long-term demand growth for energy, especially for lower-carbon energy like natural gas and renewables, Enbridge should have no trouble finding opportunities to continue expanding its operations in the future.
Built for generating passive income
Enbridge has one of the lowest-risk business models around. The company generates utility-like cash flow from a diversified portfolio of energy infrastructure assets, which supports the company's high-yielding dividend. It also has ample financial flexibility to invest in expanding its operations, which has given it the fuel to steadily grow its dividend.
The company already has ample growth lined up through the end of the decade, and more projects are coming down the pipeline. These features make Enbridge an ideal dividend stock to buy and hold for a lifetime of passive income.
