Assuming the new quarterly dividend per share of $0.61 will stay the same for the rest of the year, Enbridge shareholders would see a dividend per share increase of 13.8% this year compared to 2016.
With the new dividend, the leading North American energy infrastructure company yields a little over 4.3% at below $56 per share.
A better business
After merging with Spectra Energy, Enbridge has a more diversified business with a stronger growth outlook. This year, Enbridge forecasts to generate 47% of its earnings before interest, taxes, depreciation, and amortization from liquids transportation, 34% from gas transportation, and 17% from gas distribution utilities.
From 2017 through 2019, Enbridge expects to put $27 billion of projects in service. Roughly 44% of the projects are anticipated to come online this year, which will significantly add to the company’s cash flow generation. That’s one big reason why management had the confidence to raise its dividend again this month.
An outstanding long-term investment
Simply put, Enbridge has been an excellent investment; it has beat the average market returns of 10% per year in the long term.
Since 2001, the stock has delivered an annualized rate of return of about 12%. Since 2008, the stock has delivered an annualized rate of return of about 14%.
It shouldn’t be surprising that growing dividends contributed a meaningful portion of those returns — roughly 21% and 17% of the total returns in the respective periods.
Strong track record of paying dividends
Enbridge has paid dividends for more than six decades. Moreover, it falls into the top 10 publicly traded dividend-growth companies in Canada for having increased its dividend for 21 consecutive years.
In the last five years, Enbridge has hiked its dividend at an annualized rate of about 16%.
Can Enbridge continue its strong dividend-growth streak?
Management certainly thinks so. It thinks the company has the capacity to grow its dividend per share at a compound annual growth rate of 10-12% from 2018 through 2024 while maintaining a conservative payout ratio of 50-60% based on its projections for its available cash flow from operations.
If Enbridge increases its dividend at the lower end of its dividend-growth guidance range, an investment today would have a yield on cost of 8.3% by 2024. This is attractive for anyone looking for stable returns or income.
If you don’t want to miss out on this wonderful stock for stable returns and growing dividends, buy some shares today for the long run. Fourteen analysts at Thomson Reuters have a mean 12-month price target of $63.70 per share on the stock, which implies there’s potential upside of nearly 14% in addition to the 4.3% yield. This makes Enbridge a pretty attractive investment for the near term as well.
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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.