The global energy crisis shows no sign of abating. Inventory is as tight as ever, and global demand is stronger than ever. That’s pushed crude oil to multi-year highs and made producers much more profitable. However, one dividend stock in the sector stands out as the least-risky bet. Here’s a closer look at Enbridge (TSX:ENB)(NYSE:ENB).
Cash flow pipeline
Calgary-based Enbridge isn’t an oil or gas producer. Instead, it owns and manages one of the largest networks of oil pipelines in North America. The company transports fuel and earns revenue based on volume. In my view, that’s a more stable business model.
The price of oil is unpredictable. A sudden plunge in demand (like the lockdown in China) or a sudden surge in supply (from OPEC perhaps) could change the outlook quickly. Oil and gas producers are highly sensitive to these shifts. However, the flow of energy across North America is much more predictable and stable. That’s why Enbridge is a safer bet for conservative investors.
This stability has allowed the company to deliver dividends consistently over 67 years — despite several boom-bust cycles along the way.
Enbridge’s dividend yield is already better than most oil producers. While large-cap oil stocks like Suncor offer a 3.8% dividend yield, Enbridge offers 5.88%. Unlike oil producers, Enbridge has never cut dividends. Instead, it has expanded them every year for 27 consecutive years.
Earlier this year, the management team forecasted dividend growth of 5-7% for the years ahead. I believe dividends could grow faster than that. Alberta premier Jason Kenney told a U.S. Senate committee on Tuesday that Canadian oil producers could boost exports to the U.S. by up to one million barrels a day. If this boost materializes, Enbridge could be a prime beneficiary. The premier is pushing for the approval of a new pipeline to carry the excess production.
Meanwhile, Enbridge has been deploying cash into expansion. Last year, the company purchased the Ingleside Energy Centre port near Corpus Christi for US$3 billion in cash. That’s the largest oil export terminal in North America.
The company is also actively pursuing delivery agreements with new natural gas facilities that are still under construction. This includes delivery for the upcoming Plaquemines LNG facility in Louisiana, Texas LNG Brownsville LLC project, and NextDecade Inc.’s proposed Rio Grande facility.
Put simply, Enbridge is moving aggressively to expand capacity. That means revenue and profits could surge higher than expected in the years ahead. Investors could anticipate more dividend growth.
The global energy crisis is persistent. Oil and gas producers are raising dividends now but are still highly sensitive to geopolitical and economic factors. Pipeline giant Enbridge could be a more reliable bet for investors seeking consistent passive income over the long term. Keep an eye on this opportunity as it delivers more dividend growth in the years ahead.