The COVID-19 pandemic weighed heavily on the operations of energy companies wiping out demand. However, the sharp recovery in oil prices, supported by the uptick in economic activities, underinvestment in new supply amid the pandemic, and supply disruptions following the Russia/Ukraine conflict, are driving the financials of energy companies and, in turn, their payouts.
While several energy companies, including Suncor Energy, cut their payouts to remain afloat amid the pandemic, a few companies operating in this space continued to pay regular dividends and increased the same. Here, we’ll focus on two energy companies that have been consistently returning cash to their shareholders irrespective of the market conditions.
What’s more, these companies have solid asset bases, increased visibility over future cash flows, high dividend yields, and are poised to gain from the higher energy demand.
Enbridge
While the pandemic eroded demand for the hydrocarbons Enbridge (TSX:ENB)(NYSE:ENB) transports, it continued to pay and increase its dividend, which highlights the strength of its business model and diverse cash flows streams.
It’s worth mentioning that Enbridge’s core business has consistently performed well, supporting its payouts. The momentum in its gas distribution, storage, and transmission business and strength in the renewable power business support its cash flows and dividend payments.
Enbridge has hiked its annual dividend for the 27th consecutive year, which reflects the resiliency of its cash flows. Moreover, Enbridge offers a stellar dividend yield of 6%.
Its two-pronged growth strategy, including investments in conventional and low-carbon energy projects, augur well for growth. Moreover, its diversified asset footprint, higher utilization across each business segment, and multi-billion capital projects provide a solid foundation for growth.
Enbridge is confident of achieving 5-7% annual growth in its distributable cash flow per share over the next three years. Moreover, it expects to increase its dividend consistently. The company expects to generate about $5-$6 billion in investable capacity per year, which positions it well to deploy cash and enhance its shareholders’ returns.
TC Energy
Energy infrastructure company TC Energy (TSX:TRP)(NYSE:TRP) focuses on pipeline and power generation. It has paid and raised dividend for 22 consecutive years at a CAGR of 7%. Its strong base of regulated and contracted assets drives its revenue and cash flows and supports higher dividend payments. Moreover, a focus on efficiency savings has cushioned its bottom line.
TC Energy is confident of funding its capital program and future dividend payments through the internally generated cash flow. Its $24 billion secured capital program and additional growth projects will likely drive its adjusted EBITDA. TC Energy forecasts its adjusted EBITDA to grow at a CAGR of 5% over the next five years. Moreover, TC Energy expects to generate approximately 95% of its adjusted EBITDA from regulated and contracted assets, implying that its payouts are well protected.
Its low-risk and high-quality assets, positive energy outlook, cost-saving initiatives, and energy transition opportunities will likely support its earnings and dividend payments. Thanks to the ongoing momentum in the business, TC Energy expects to grow its dividend by 3-5% per annum in the future years. Further, it yields about 5%.
