Enbridge (TSX: ENB)(NYSE: ENB) once again delivered strong quarterly numbers, reflecting the strength and resiliency of its business. Despite the challenges from weak demand and lower oil prices, the energy infrastructure giant reported an adjusted EBITDA of about $3 billion in Q3, which declined marginally from the year-ago period. Moreover, its distributable cash flow (DCF) remained strong at $2.1 billion.
Commenting on the Q3 performance, Enbridge’s CEO Al Monaco said, “each of our core businesses performed well in the third quarter. Utilization levels in our Gas Transmission, Gas Distribution and Storage and Renewable Power businesses all remained strong and their robust commercial underpinnings continue to deliver reliable cash flows which reflect the low risk pipeline-utility business.”
Thanks to the strength in its core business and its ability to generate resilient cash flows, Enbridge reiterated its 2020 DCF per share outlook. Enbridge expects DCF/share to be at the mid-point of its previously guided range of $4.50 to $4.80.
While Enbridge’s Q3 financial numbers impress, I see three strong growth catalysts that could support the recovery in its stock and boost shareholders’ returns.
Strong core business
While the COVID-19 pandemic took a toll on Enbridge’s mainline throughput volumes, its core business remains strong and is witnessing high utilization rate. Enbridge’s gas transmission, gas distribution and storage, and renewable power business continue to deliver robust cash flows and support its business.
Moreover, Enbridge benefits from its low-risk business that generates utility like predictable cash flows, thanks to long-term contractual agreements, including take-or-pay or cost-service arrangements.
With the uptick in economic activities and recovery in energy demand, Enbridge remains well positioned to deliver strong cash flows. Moreover, the completion of its secured capital program is likely to drive a 5-7% growth in its DCF/share.
Over 9% dividend yield
Enbridge has a history of consistently boosting its shareholders’ returns through higher dividends. It has been paying dividends since it went public in 1953. Moreover, its dividends have been growing at an annual rate of about 14% over the past decade, which is commendable.
Last year the company returned about $6 billion to its shareholders in the form of dividends. Moreover, it continues to pay its regular dividends in 2020, despite significant challenges from the pandemic. As the COVID-19 pandemic dragged Enbridge stock down, its dividend yield increased to over 9%, making it an attractive income stock.
The company’s diversified sources of cash flows, contractual arrangements, and focus on lowering costs suggest that its payouts are safe. Moreover, with the improvement in demand and secured capital program, Enbridge could continue to raise its future dividends and boost its shareholders’ returns.
Attractive valuation
Enbridge stock is down about 27% year to date and looks attractive on the valuation front. Enbridge stock trades at a next 12-month enterprise value-to-EBITDA multiple of 10.8, which is roughly 14% lower than its historical average of 12.6. Further, its forward enterprise value-to-sales multiple of 3.8 also looks attractive.
Enbridge’s resilient business and low valuation present a good entry point for long-term investors. Moreover, its robust dividend payouts are likely to boost investors’ returns further.
