Market analysts are bullish on energy stocks in 2024, although they have yet to gather momentum, including an industry heavyweight. The sector is down 1.59% year to date, while Enbridge (TSX:ENB) is in red territory with -3.50%. Despite the slow start to the year, the energy giant remains a first-choice investment.
Most Enbridge investors are after dividend income, not price appreciation, although market analysts see a 16.5% (average) to 34.7% (high) upside from the current share price in one year. But at $46.03 per share, the dividend yield is a hefty 7.95%.
Hold the stock in a Tax-Free Savings Account Investors (TFSA) for higher tax-free income. Consider investing in a Registered Retirement Savings Plan (RRSP) to reduce your tax burden. You can claim deductions on your 2023 return on RRSP contributions from March 2, 2023, to February 29, 2024.
Strong financial results
On February 9, 2024, Enbridge released its earnings results for the fourth quarter (Q4) and full year of 2023. Its president and chief executive officer (CEO), Greg Ebel, said it was another year of strong safety, operational and financial performance across the enterprise. Despite massive headwinds, the $97.84 billion energy infrastructure company achieved its financial guidance for the 18th consecutive year.
Ebel added that the stable, low-risk, diversified business remains well positioned to grow earnings and dividends for shareholders for years to come. In 2023, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and earnings increased 6.5% and 0.9% year over year to $16.45 billion and $5.74 billion, respectively.
Notably, distributable cash flow rose 2.59% to $11.27 billion from a year ago, while the dividend hike in 2023 marked 29 years of annual dividend increases. Management said the evolving portfolio of high-quality assets underpins long-term value creation and dividend sustainability.
EBITDA is predictable due to the diversified cash flows. Furthermore, 98% of EBITDA comes from cost-of-service or contracted assets, and 80% has inflation protectors. The competitive systems with high utilization levels within the liquids pipeline segment drive growth. It contributed 58% ($9.54 billion) of the adjusted EBITDA.
Forward-looking
“Looking to the future, we will continue to expand and modernize our infrastructure, driving growth and reducing emissions from our business,” said Ebel. “We believe that our balance sheet strength, secured growth backlog, proven execution capability, and growing dividend will drive value for our shareholders.”
Enbridge’s future growth will come from a diverse and low-risk secured capital program worth around $24 billion. Thus far, the company has spent $2 billion. Besides the liquids pipeline, the gas transmission, gas distribution & storage, and renewable power segments have growth projects from 2024 to 2027.
In September 2023, Enbridge acquired the East Ohio Gas Company, Questar Gas, and the Public Service Company from Dominion Energy. Management said acquiring the three companies is a “once-in-a-generation opportunity” and will create North America’s largest natural gas utility franchise.
Enbridge expects to close the deal this year. According to Ebel, each gas utility firm has committed to achieving net-zero greenhouse gas emissions by 2050.
Resurgence is coming
Enbridge has delivered stable returns and rock-solid dividend income for years. Because of heightened global energy demand, the resurgence of energy stocks in 2024 is inevitable. The overall return could be higher since the chances for capital appreciation are also high.
