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Enbridge (TSX:ENB): 1 Top Energy Stock to Buy Today Yielding Over 6%

It has been almost five years since oil prices collapsed because of a growing global supply glut, sparked by the U.S. shale oil boom. While the ongoing slump is having a sharp impact on upstream oil explorers and producers, those companies such as Enbridge (TSX:ENB)(NYSE:ENB) that provide critical infrastructure to the North American energy patch are performing strongly. Enbridge has gained almost 9% over the last year, despite the United States Oil Fund, which is a market proxy for West Texas Intermediate (WTI), losing 17%.

The reasons for this are quite simple; Enbridge, unlike oil producers, is not directly dependent on the price of crude to grow earnings; it provides crucial transportation and storage infrastructure to drillers that allows them to access key energy markets. The breadth and width of Enbridge’s pipeline network means that it is a leading North American provider of midstream services to the energy patch responsible for transporting 25% of the continent’s crude and a fifth of natural gas produced.

Growing earnings

Despite the oil collapse, Enbridge’s earnings continue to grow at a solid clip. First-quarter 2019 earnings grew more than threefold compared to a year earlier to $1.9 million, while that impressive result can be attributed to several one-off events, a key driver was a notable increase in the volume of petroleum liquids and natural gas transported. New gas transmission assets, which entered service in 2018, added to natural gas volumes, while higher fees further bolstered margins and earnings.

Enbridge has forecast that 2019 EBITDA will expand by 11% year over year to $3.8 billion, distributable cash flow will expand by a notable 19% to $2.8 billion, and adjusted net earnings will expand by the same amount to $1.6 billion.

That solid earnings growth will continue for the foreseeable future with the midstream services provider currently developing $16 billion of projects that are expected to enter service between now and 2023. One of the most crucial projects under development, not only for Enbridge but for Canada’s energy patch, is the Line 3 Replacement, which has a forecast capital cost of $9 billion. On entering service, it will significantly expand the volume of petroleum liquids that can be transported from Canada to U.S. refining markets, and it is anticipated that it will enter service during the second half of 2020.

Over the long term, Enbridge expects that distributable cash flow per share will expand by 5-7% annually, which will not only ensure the sustainability of the dividend but also lead to further dividend hikes.

That planned growth will not only be supported by the commissioning of the infrastructure assets under development and growing Canadian oil production but also by Enbridge’s initiatives aimed at reducing costs and boosting margins. Of these plans, one of the most important is the reduction of debt with management planning to reduce consolidated debt to less than five times EBITDA.

Enbridge has also completed the roll-up of its separately listed vehicles into as single entity, leading to lower costs, greater transparency, and an improved credit profile.

Foolish takeaway

While shareholders wait for Enbridge stock to appreciate, they will be rewarded by its sustainable and regularly growing dividend, which yields over 6%. The company has hiked its dividend for an impressive 23 years straight and is on track to increase it yet again, making it a highly attractive investment for investors seeking to build wealth and a recurring, steadily growing passive-income stream.

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

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