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.
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.
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Fool contributor Kay Ng has no position in any stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.