After many volatile years following the oil and gas sector, there’s one thing I know for sure: expect volatility. And lots of it. That’s why gaining exposure to this very lucrative industry is oftentimes very stressful. It’s also why Enbridge (TSX:ENB) stands out as one of the best energy stocks.
Consistent and predictable cash flows
First of all, I would like to review Enbridge’s earnings and cash flow profile. It’s a profile that spans many decades and that has proven to be consistent and predictable. This is driven by the fact that a big portion of Enbridge’s revenue is regulated.
For example, in the last five years, Enbridge has steadily grown its revenue by 15%, or at a compound annual growth rate (CAGR) of 3%. The last eight years are also an indication of the type of growth that we have come to expect from Enbridge. Despite volatile commodity markets, Enbridge’s cash flows remained pretty consistent — and they increased at a CAGR of over 13%. Today, Enbridge is churning out over $11 billion in operating cash flow, money that is enabling the company to reward its shareholders and invest in its future.
Enbridge’s dividend yield of 6.65%
One of the benefits of owning a stock with such a strong cash flow profile is that this cash is often used to reward shareholders with dividends. And, in fact, this is exactly what Enbridge has been doing. In fact, the company’s dividend profile is another indication of the stability and strength of its business.
Enbridge has 28 years of annual dividend increases under its belt. During this time period, its annual dividend has grown at a CAGR of 7.25%, to the current $3.55 per share. This translates into a whole lot of dividend income for shareholders. Importantly, this growth continues. Its latest dividend increase was a 3.2% increase in its quarterly dividend earlier this year.
But it’s not only Enbridge’s dividend profile that has benefitted. Enbridge’s strong business has also ensured a strong stock. Take a look at Enbridge’s stock price graph below to get a sense of its performance, which reflects the long-term stability and growth of its underlying business.
Ready for the future
We’re all painfully aware of the energy transition that is taking place. Despite the long and difficult path to get there, this transition is necessary. Any company that’s not preparing for it will get left behind. Thankfully, Enbridge saw the writing on the wall years ago — even when it was not so widely accepted as it is today.
Thus, the company began investing in renewable energy sources. Today, this segment is contributing a small amount to Enbridge’s earnings. In 2023, renewables are expected to account for 3% of Enbridge’s earnings before interest, taxes, depreciation, and amortization. But this will be accelerating going forward, as this energy stock will not stand still.
You see, Enbridge is in full construction mode in this segment with four offshore wind farms and 10 solar operations in construction. Enbridge recently completed building a large wind farm in France, with the company boasting on-time and on-budget completion. Saint Nazaire is France’s first operational offshore wind farm, providing 480 megawatts of electricity — enough to provide 700,000 people with electricity every year.
Enbridge stock holds steady above $50
Today, Enbridge’s stock price is trading at approximately $53.50, which is 42% higher than five years ago and 158% higher than 15 years ago. The climb has been relatively steady for an energy stock, and the dividend yield has been very attractive. It’s clear to me that Enbridge stock was and is a keeper.