Enbridge(NYSE: ENB) has one of the best track records of paying dividends in the energy sector. The Canadian pipeline and utility operator has paid dividends for over 69 years, and even better, it has increased its payment annually for the past 29 years.
The energy company currently offers a dividend yield of more than 6%, which is very attractive compared to other income options. Enbridge’s combination of yield, growth, and lower-risk profile makes it a no-brainer stock to buy for income.
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Enbridge CEO Greg Ebel highlighted the company’s dividend during its recent third-quarter earnings conference call: “At Enbridge, we have built a low-risk business that is designed to succeed in all market cycles. This is how we’ve been able to deliver growing dividends for 29 years, making us one of the very few Dividend Aristocrats® (the term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC).”
As Ebel points out, Enbridge is one of the few companies in the entire market that has delivered 25 or more years of consecutive dividend increases. That feat is especially rare in the energy sector due to the volatility of commodity prices.
The CEO discussed the factors contributing to the company’s ability to deliver consistent dividend growth in such a volatile industry, stating:
It’s worth noting key drivers that enable us to be considered a Dividend Aristocrat® and underpin that 29 years of dividend growth. Our highly contracted cash flows experienced minimal volatility, allowing us to predictably pay and grow the dividend. Investment-grade credit ratings across the 4 major rating agencies highlight the strength of our balance sheet and the low-risk nature of our businesses. We have negligible commodity price exposure, which sets us apart from many of our midstream peers.
Enbridge’s pipeline and utility operations produce incredibly stable and predictable cash flow. Roughly 98% of its earnings come from long-term, fixed-rate contracts and cost-of-service agreements. That gives the company significant visibility into its cash flows since it has minimal exposure to commodity price volatility. Enbridge is on track to deliver its 19th straight year of achieving its annual financial guidance.
The company also has a rock-solid financial profile, with investment-grade credit backed by a low leverage ratio. It also has a reasonable dividend payout ratio of 60% to 70% of its stable cash flows. Those two factors give it billions of dollars of annual investment capacity. That helps drive its view that it can continue growing.
Ebel went on to highlight another important aspect of the company’s dividend: “Enbridge offers an attractive dividend yield, which sits above the return of many alternative investments. The Canadian and U.S. 10-year treasuries are sitting at about 3% and 4%, respectively, while broad equity indices, like the TSX 60 and the S&P 500, are at approximately 3% and 1%, respectively.”
With its current yield above 6%, investors can generate a lot more income by investing in Enbridge. For perspective, every $1,000 invested in Enbridge’s stock would produce about $60 of annual dividend income. That compares to $30-$40 of interest income by investing the same amount into government bonds and $10-$30 of dividend income by investing in an index fund.
Finally, the CEO highlighted:
And then on EBITDA growth, we expect that to be higher through the next few years at 7% to 9% due to base business performance, new assets entering service, tuck-in M&A, and contributions from the acquired utilities. … All told, our business is designed to succeed in all market cycles and deliver predictable results.Despite a volatile world, Enbridge is seeing increased visibility of our long-term growth, supported by strong energy infrastructure fundamentals and, in particular, rising power demand.
Enbridge expects to deliver accelerated earnings growth in the near term, fueled partly by its needle-moving acquisitions of three natural gas utilities from Dominion. Meanwhile, it has solid longer-term growth prospects thanks to its highly visible capital project backlog (expansion projects underway through 2029) and the expected surge in power demand, which will benefit its gas infrastructure and renewable energy franchises. Ebel believes Enbridge can grow by around 5% annually over the longer term while maintaining its financial discipline and returning significant cash to shareholders through a growing dividend.
Enbridge has everything income-seeking investors could want. It has an elite record of growing its dividend, offers an attractive yield, has a low-risk business model, and has visible growth coming down the pipeline. These factors make it a no-brainer investment for those seeking a lucrative income stream.
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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge and S&P Global. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
