In late February, Enbridge Inc. (TSX:ENB)(NYSE:ENB) completed its merger with Spectra Energy to become the largest energy infrastructure company in North America.
The combined company’s enterprise value is about $166 billion and has the strongest liquids and natural gas infrastructure franchises on the continent.
Long-term investors should take a closer look at the stock — no matter if they’re interested in total returns or income. Here’s why.
A low-risk business
Enbridge employs a low-risk business model such that the company can maintain its profitability in all market cycles.
First, its cash flow is stable and predictable because it has 96% of its cash flow underpinned by long-term commercial agreements such as take-or-pay and cost-of-service contracts.
Second, it has less than 5% of its earnings before interest, taxes, interest, depreciation, and amortization exposed to commodity pricing. So, its earnings should be pretty stable as well.
Third, it has quality customers, earning 93% of its revenue from investment grade or equivalent customers.
One of the best dividend stocks that outperforms
Since 2000, an investment in Enbridge has returned 14.1% per year. That greatly outperformed the annualized returns of less than 4% from an investment in S&P 500 in that period. In the same period, Enbridge increased its dividend by more than six times.
Putting it in perspective, a $10,000 investment in Enbridge at the start of 2000 would have transformed to north of $96,700, of which more than $20,400 is dividends. That’s right! In less than two decades, the investment would have gotten twice the original investment back in dividends alone.
Similar dividend-growth rate to continue
Enbridge has hiked its dividend for 21 consecutive years. In the last two decades, it increased its dividend at an average annualized rate of 10.6%. The company expects similar dividend growth of 10-12% per year through 2024.
Last year, Enbridge’s available cash flow from operations per share (ACFFO) payout ratio was 52%. The leading energy infrastructure company believes the growth of its ACFFO per share can continue to support healthy dividend growth.
Investor takeaway
The combined company of Enbridge and Spectra Energy has a bigger scale, is more diversified, and is a leading global infrastructure company.
It has a big network of crude oil, liquids, and natural gas pipelines, a large portfolio of regulated gas distribution utilities, and a growing renewable power-generation platform.
Enbridge has tended to outperform the market in the long run, and from the company’s defined dividend-growth plan, it looks like can continue to outperform.
Currently, Enbridge offers a dividend yield of nearly 4.3%. Through 2024, it aims to hike its dividend by at least 10%, which is above average.
