As one of North America’s leading energy infrastructure companies, Enbridge Inc. (TSX:ENB) is an ideal dividend stock. This is because its business provides reliable, predictable, and growing cash flows over time. Society needs energy to power lives at home, at work, and everywhere in between. So, it makes sense that Enbridge’s dividend has been so reliable.
A long history of dividend increases pleases income investors
Enbridge stock has 28 years of annual dividend increases under its belt. During this time period, its annual dividend has grown at a compound annual growth rate (CAGR) of 7.25%, to the current $3.55 per share. Essentially, the dividend today is 1,320% higher than it was in 1995, which has made it an ideal stock for income investors. Also, Enbridge’s stock price is more than 1,000% higher than it was in 1995.
It’s something that we should really take note of because although this track record is utterly valuable, this type of stock does not get the recognition it deserves. The market, and investors, seem to endlessly celebrate the high-flying stocks – to their peril. Because these high-flying stocks often get beaten back down to reality. Stocks like Enbridge, however, are tried, true, and tested. I think this reliability is downright valuable. I think it’s actually very exciting.
So, this track record actually speaks volumes. It’s not every company that can achieve this. Through it all, Enbridge has been at the heart of the North American economy. At the same time, the company remained committed to providing its shareholders with safe and growing dividend income. Enbridge stock’s dividend history speaks for itself.
A defensive business
Enbridge’s dividend is backed by a defensive business, and this drives its stable results. Energy infrastructure is the backbone of society. It delivers an essential need, energy, for daily living. It powers our homes and cars, and the economy could not function without it. This ensures a steady flow of demand.
But Enbridge also benefits from the details. Its business deals are long-term and contracted. In fact, 98% of Enbridge’s cash flow is contracted. Also, 95% of Enbridge’s customer base is investment grade. Lastly, 80% of Enbridge’s EBITDA is inflation-protected. So, all of this results in predictable returns. In turn, Enbridge’s dividend is also predictable and reliable.
Finally, Enbridge has a high-quality balance sheet. This has given the company high ratings at the credit agencies, as well as financial flexibility to invest and grow. The company has even taken steps to minimize its interest rate risk. Today, less than 5% of Enbridge’s debt is exposed to floating rates.
Enbridge’s staying power
At this point, I would like to touch upon Enbridge’s future. While the transition toward renewable energy has certainly cast a shadow over Enbridge, the company is taking steps to reposition itself for this eventuality.
First of all, the transition is one that will take decades. Of this, there should be little doubt. In the meantime, Enbridge is benefitting from booming demand. Secondly, Enbridge is adjusting to the future by making the right investments. For example, Enbridge was recently awarded France’s largest offshore wind farms to date, at a long-term fixed price indexed to inflation. This is Enbridge’s sixth offshore wind project, and we can expect more. The company applies the same discipline here as in the rest of its business, so we can expect similar returns and cash flow structures.
Enbridge is a powerhouse energy infrastructure giant with a growing asset base and operational integrity that income investors have benefited from for decades. I expect this to continue and that Enbridge’s stock price will rally from here.
