Enbridge Inc.: A Smart Dividend Stock Going into 2017?

Enbridge Inc. (TSX:ENB)(NYSE:ENB) will be increasing the dividend by over 10% each year through 2019. I say, buy.

| More on:
The Motley Fool

Enbridge Inc. (TSX:ENB)(NYSE:ENB) has always been a stock I have found interesting because of the company’s unique business model. While it is entirely dependent on oil companies for its business, it’s never been dependent on high prices to generate revenue because it operates as a toll booth.

In essence, oil companies pay Enbridge a flat per-barrel fee for access to its network of pipelines. Whether the price of oil is US$50 or US$100, the companies still have to pay to transport the crude.

And because of that predictable toll-booth-like business, its profits are predictable, which allows it to grow the dividend that investors receive. In my opinion, Enbridge is an incredibly smart stock to own for those looking for income.

Enbridge is working to acquire Spectra Energy Corp. (NYSE:SE), a natural gas pipeline. Should this deal go through, the combined companies would be the largest energy infrastructure company in North America.

All told, management projects that annual run-rate synergies will be in the ball park of $540 million. Being able to grow a company while cutting costs is a solid way to divert free cash flow to dividends.

The Spectra acquisition gives Enbridge exposure to natural gas in a way it has never had it before. And thanks to development projects, management believes that Spectra will be able to generate a 3-5% compound annual growth rate (CAGR) between now and 2025.

On the topic of development projects, between the two companies, there is $74 billion in secure project and risked-development inventory in the coming years. And there is $26 billion that is currently in execution that will be ready to launch by 2019.

By adding this huge network of quality projects to the network, the company is going to be able to consistently generate growing cash flows that should ultimately result in a perpetually growing dividend.

One project waiting for government approval that should help the company quite significantly is its Line 3 pipeline replacement. Although it will cost $7.5 billion, this helps the company in two ways.

First, it increases capacity from 390,000 barrels per day to 760,000 barrels, which was its original capacity. Second, the company will have to spend $1.1 billion in maintenance on the line in the next year with more to come in future years. If Enbridge can instead invest that money in a new pipeline that will increase capacity, it’d be a net positive for the company.

So let’s talk dividends…

If the above acquisition actually goes through, management expects to increase the dividend in 2017 by 15% because the deal is accretive immediately.

Both Enbridge and Spectra shareholders have expressed overwhelming support for the acquisition, which is a good sign. Enbridge is currently working through the regulatory hassle of proving that this won’t be a negative for consumers, but management is confident that the deal can be closed in the first quarter of 2017.

However, even if the deal doesn’t go through, management has talked about increasing the dividend by anywhere from 10% to 12% per year through 2019. And if its development projects can all get approved and launched, the dividend could continue to grow for many more years to come.

All in all, I am quite confident that Enbridge will be able to increase its dividend. For investors that want a stable and secure yield that grows, I say buying Enbridge is a no-brainer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned. The Motley Fool owns shares of Spectra Energy. Spectra Energy is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »