The June 2021 short-term energy outlook (STEO) report by the U.S. Energy Information Administration (EIA) predicts Brent oil spot prices to average $65.19 per barrel this year. In the same STEO, EIA expects the increase in global oil production to match the rising levels of global oil consumption.
Regarding the Organization of the Petroleum Exporting Countries (OPEC), the EIA forecasts the organization’s crude oil production to average 26.9 million barrels per day in 2021 and 28.7 million barrels per day in 2022. The outperformance of TSX’s energy sector reflects the resurgence of oil prices and demand.
Pipeline giant Enbridge (TSX: ENB)(NYSE: ENB) is perhaps the most sought-after asset in the energy sector. Most dividend investors will not think twice about making this top-tier stock a core holding. However, they also want to know how it will perform for the rest of 2021.
Always a top-of-mind choice
Enbridge remains a top-of-mind choice in 2021 because of its generous dividend payout. At $50.11 per share (+27.58% year-to-date), the dividend yield is 6.81%. Rivals Pembina Pipeline and Keyera, both monthly dividend payers, offer less. Market analysts maintain a strong buy rating, too, and forecast a potential upside of 49% to $60 in the next 12 months.
COVID-19 year performance
The energy stock lost 15.31% in 2020 due to the overall weakness of the energy sector and the oil price slump. Despite the 43.4% drop in full-year GAAP earnings in 2020 versus 2019, Enbridge’s adjusted EBITDA was flat at $13.3 billion. Moreover, cash from operating activities increased by $400 million to $9.8 billion.
Notably, Enbridge didn’t slash dividends to preserve cash. Instead, management raised the 2021 quarterly dividend by 3%, the 26th consecutive year it has done so. The company also obtained $16 billion of secured growth capital.
It should support between 5% to 7% distributable cash flow (DCF) per share growth through 2023. About $1.6 billion of growth projects are in service in 2020 and early 2021.
Enbridge President and CEO Al Moneco said about the year’s performance, “Operationally, we performed well in the fourth quarter, completing a strong 2020 in the face of a very challenging energy and economic backdrop.”
2021 business update
In the quarter ended March 31, 2021 (Q1), results were better as GAAP earnings attributable to common shareholders increased by $3.3 billion compared with the same period in 2020. Monaco notes that, as usual, Enbridge’s strong operational performance combined with highly contracted and utility cash flows resulted in strong financial results.
Likewise, Enbridge’s chief said that DCF during the quarter was largely unaffected by the COVID-19 pandemic. It grew by $100 million versus Q1 2020. The $101.5 billion energy infrastructure company will put $10 billion more in secured growth capital into service in order to support significant cash flow growth in 2022.
According to Monaco, Enbridge’s strong start in 2021 was due to the high utilization of all of its business segments. Apart from the resilient demand-pull blue-chip franchises, the contracts are with investment-grade customers. The ongoing recovery of global economic activity should improve business performance.
Enbridge will stay the course
Enbridge will likely stay the course for the rest of 2021. The class-A investment hasn’t disappointed investors for decades, notwithstanding the perennial industry headwinds. I don’t see any stock price drop and interruption in dividend payments whatsoever. For new investors, buy the energy stock and hold it forever.
