Energy (17.27%) is a heavyweight sector in Canada’s primary stock market and second to financials (35.44%) in percentage weight. One of its constituents, Enbridge (TSX:ENB), is always in the picture whenever the talk is about TSX’s top large-cap or blue-chip stocks.
The $101.2 billion company operates a prolific pipeline network vital to the country’s oil and gas midstream industry. On Nov. 28, 2023, the board of directors declared a 3.1% dividend increase to raise the yield to 7.71%. After this recent hike, is it time to buy Enbridge?
Whether the dividend was increased or not, Enbridge is a no-brainer buy. You’re missing out on a once-in-a-lifetime opportunity if you don’t yet own shares of the fourth-largest TSX company. Besides the utility-like, low-risk commercial model, the top-tier energy stock boasts a sustainable growing dividend.
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Investor value proposition
Enbridge pays quarterly dividends and hasn’t missed a payment to shareholders for 69 years. Moreover, the most recent dividend increase represents 29 consecutive annual increases. “Growing our dividend remains an important component of our investor value proposition,” said its president and chief executive officer (CEO), Greg Ebel.
The company’s four core franchises are value drivers. Enbridge’s gas transmission & midstream segment meets the growing utility customer demand and supports electric generation growth. The gas distribution, liquids pipelines, and renewables segment contribute at least $1 billion to revenue annually.
Enbridge maintains a low-risk commercial and financial profile. Around 98% of cash flows are contracted (cost of service), and 95% of its customers are investment-grade. More importantly, 80% of EBITDA has inflation protections.
Growth outlook
Mr. Ebel added, “Enbridge remains well positioned to continue delivering predictable growth well into the future.” Since the start of 2023, the company has secured $7 billion worth of additional attractive, organic projects. The secured backlog rose to $25 billion as a result.
In the third quarter (Q3) of 2023, Enbridge entered into three separate definitive agreements with Dominion Energy to acquire the latter’s natural gas utility assets. The strategic acquisitions will expand its gas utility platform, add reliable cash flows, strengthen its dividend-growth profile, and deliver strong shareholder returns.
Enbridge will also acquire seven operating landfill-to-renewable natural gas assets in Texas and Arkansas. Management said the transaction represents a uniquely de-risked portfolio of operating and scalable RNG (renewable natural gas) assets.
Balance sheet stability is a plus factor for Enbridge. The four core franchises delivered solid quarterly results, despite the elevated market volatility. The cash from operating activities during the quarter increased by $1 billion year over year to $3.1 billion. Ebel said utilization across the systems was high, and Enbridge is on track to achieving its 2023 EBITDA guidance for the 18th consecutive year.
Buy and hold
There’s no need to time the market or wait for more dividend hikes to buy Enbridge. The energy stock is a must-own asset for dividend and growth investors. Its promise to reward shareholders with superior dividend growth is not lip service. The dividends have grown at an average compound annual growth rate of 10% in 29 years. At $47.61 per share, you get your money’s worth.
