Enbridge (TSX:ENB) is a blue-chip stock that pays reliable dividend income. It has paid dividends non-stop for about 70 years, and it has increased its common stock dividend for roughly 27 years.
It has invested tonnes of money into its network of liquids pipelines and gas transmission, distribution, and storage assets. As well, it has supporting renewable power facilities. For example, in the past four years, it made capital investments of approximately $24.2 billion, which was 61% of its operating cash flow generation in the period. The large investments required to build and maintain a sizeable network serve as a deterrent for new entrants.
For a long time, Enbridge enjoyed double-digit growth. From 2005 to 2020, the energy stock was able to healthily increase its dividend per share by about 13% per year! In this 15-year period, the dividend stock delivered total returns of about 9.7% per year, transforming an initial investment of $5,000 into about $22,024.
However, in recent years, the company’s growth has slowed. Interestingly, the sluggishness began in 2021, as signaled by a 3.1% dividend hike that year. This was before interest rates started increasing in 2022. Accordingly, the stock valuation has been more depressed. At $48.90 per share at writing, the stock trades at about 17.1 times earnings and 8.2 times cash flow.
Precisely because the stock valuation has lowered, its dividend yield has been lifted. Whereas in 2005, the stock yielded north of 3%, its dividend yield is north of 7% today! So, a lot of the returns going forward have shifted to its dividend versus expected growth from the company.
If you have been a buy-and-hold investor in Enbridge stock since 2005 with an initial purchase of $5,000, your position would be about $27,528 today — a total return of 9.7% per year. Of course, it was possible to gain even more if you had reinvested the dividends wisely — that is, you could have reinvested the dividends directly back into more ENB shares if you thought it was still an excellent business to enlarge your position in or else you could have reinvested the dividends selectively into the best Canadian stocks.
What if you invested $5,000 into Enbridge stock today?
Enbridge stock’s dividend growth in the past two years were about 3%. It maintains a payout ratio of 60-70% of its distributable cash flow. Its payout ratio was about 63% last year. From 2022 to 2025, management forecasts it would be able to grow its distributable cash flow per share by about 3%. After 2025, it expects the growth to bump up to about 5%. So, it’s reasonable to expect dividend growth of about 3% to continue through 2025, which could potentially lift to about 5% after 2025.
Currently, the analyst consensus 12-month price target, as shown on Yahoo Finance, is $58.74. Let’s be conservative and assume a growth rate of 3% over the next five years for a price target of $68.09. Combining with the dividend yield of 7.25% at writing, it suggests an estimated total return of approximately 14% (so a $5,000 initial investment turning into $9,669), which would be not bad at all for a high-income stock.
