Investing in quality stocks and holding them for several years is an ideal strategy to generate outsized returns and build long-term wealth while allowing you to benefit from the power of compounding.
One such blue-chip TSX stock that has delivered game-changing returns to shareholders is energy infrastructure giant Enbridge (TSX:ENB). In the last 20 years, ENB stock has returned 267%. After adjusting for dividends, total returns are much higher at 769.2%.
So, a $5,000 investment in Enbridge stock in 2004 would be worth $43,460 today. Comparatively, a similar investment in the TSX index would be worth “just” $22,230 today.
As past returns don’t matter much to potential investors, we need to evaluate if Enbridge stock remains a strong buy for the next 20 years.
An overview of Enbridge
Valued at $100 billion by market cap, Enbridge is a TSX giant with diversified revenue streams. It has four primary business segments that include liquid pipelines, natural gas pipelines, gas utilities and storage, and renewable energy.
Enbridge transports 30% of the crude oil produced in North America and 20% of the natural gas consumed south of the border. It operates North America’s third-largest natural gas utility by consumer count and is an early investor in clean energy with a growing offshore wind portfolio.
A big-ticket acquisition
Last year, Enbridge disclosed plans to acquire three gas utilities from Dominion Energy for $19 billion. The acquisition should close in 2024, subject to regulatory approvals, after which Enbridge will be the largest gas utility platform in North America.
The deal should also enhance Enbridge’s low-risk utility model while allowing it to maintain a strong balance sheet and resilient cash flows.
Enbridge emphasized it acquired the assets at an attractive forward price-to-earnings multiple of 16.5 times. Further, its enterprise value to rate base multiple is reasonable at 1.3 times. The acquisition should be accretive to Enbridge’s earnings per share and distributable cash flow (DCF) per share driven by its utility growth profile.
Generally, natural gas utilities are recognized as long-term assets as they are a crucial part of the energy distribution infrastructure.
Enbridge is a Dividend Aristocrat
Enbridge currently pays shareholders a quarterly dividend of $0.888 per share. Further, these payouts have risen at an annual rate of 9.70% in the last 29 years, which is exceptional for a company part of a cyclical sector.
Due to its enviable dividend growth history, Enbridge offers you a dividend yield of 7.7%, which is very attractive. It aims to keep its payout ratio below 70%, providing the company with enough room to reinvest in growth projects, reduce balance sheet debt, and target accretive acquisitions.
Despite an uncertain and volatile macro environment, Enbridge expects to end 2024 with adjusted earnings before interest, tax, depreciation, and amortization between $16.6 billion and $17.2 billion, up from $14 billion in 2021 and $15.5 billion in 2022.
It expects DCF per share to range between $5.40 per share and $5.80 per share this year, allowing it to pay shareholders an annual dividend of $3.66 per share.
Priced at 16 times forward earnings, ENB stock also trades at a discount of 15% to consensus price target estimates.