The energy sector accounts for 16.4% of the S&P/TSX Index. The index is the principal measure for the equities market in Canada.
People who invested $10,000 in Enbridge at the start of 2019 would have $12,551 at the end of the year or a total return of 25.51%. The earning is substantial given the time frame and because it includes the reinvestment of dividends.
If you have long-term financial goals or are starting to plan for retirement, Enbridge is a must-buy. Its yield stands at 5.86% today. The more you invest in the stock and the longer you hold on to the stock, the higher the value of your investment.
Higher cash flow in 2020
Looking at gains in a very short time frame, you would know that Enbridge has generated solid returns for investors in 2019. The gains of this pipeline giant thus far this year is 26.8%. Its price was $39.89 on December 31, 2018 and has climbed to $50.57 as of this writing.
The price appreciation also indicates that this stock is not selling at a bargain. However, don’t think there is no upside on the horizon. Because Enbridge has more to offer, the price is inexpensive.
For 2019, management is confident to produce $8.9 billion of distributable cash flow. The amount is almost 1% higher than in 2018 and is due primarily to the timing of Enbridge’s expansion projects.
The company also expects to complete $9 billion worth of projects this year. More billion dollars’ worth of projects is for completion in 2020. These expansion projects should enhance cash flow next year.
More cash flow after 2020
With the way projects are coming in, Enbridge knows that cash flow should continue growing at a healthy pace. The company has the financial flexibility to fund between $5 billion and $6 billion worth of expansion projects annually. It should realize an annual cash flow growth of 5% to 7%.
Several secured several projects beyond 2020 are in the bag. Enbridge’s pair of gas pipelines — Spruce Ridge and the T-South Expansion – is scheduled to start up in 2021.
A new offshore wind farm in France is due completion in 2022. Its utility segment has smaller projects under construction, including additional gas pipelines and a few expansions.
The growth projects in development are growing and Enbridge will be business than usual. It’s developing an offshore oil export terminal in Texas that should be operational in 2021 or early 2022 at the latest.
A gas pipeline partnership is in the works in support of an upcoming LNG that could begin in 2023. Three more offshore wind farms are under development in Europe, where the timetable to come online is 2023.
Solid financial profile
In conclusion, the long-term contracts of Enbridge and its other sources contribute nearly 98% of cash flow. Factor in the solid financial profile and investment-grade balance sheet and you have a high-quality asset for the long haul.
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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. Enbridge is a recommendation of Stock Advisor Canada.