Enbridge (TSX:ENB) is a diversified energy company that utilizes its pipeline network to transport oil and natural gas across North America. It also has a strong presence in the natural gas utility business and is expanding its footprint in the renewable energy space. The company earns around 98% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from cost-of-service contracts and regulated assets. Besides, around 80% of its adjusted EBITDA is inflation-indexed, thus shielding its financials from rising prices.
Supported by its solid underlying business, the energy company has delivered over 760% returns over the last 20 years at an 11.4% CAGR (compound annual growth rate). Meanwhile, businesses, governments, and individuals are increasingly moving towards clean energy amid growing awareness of environmental pollution. So, let’s assess whether Enbridge could still replicate its previous performances in the coming years.
First, let’s look at its performance in the recently announced fourth quarter that ended on December 31.
Enbridge’s fourth-quarter performance
Last week, Enbridge reported its reported fourth-quarter performance, with net earnings of $1.7 billion. It’s a substantial improvement from net losses of $1.1 billion in the previous year’s quarter due to the absence of a $2.5 billion goodwill impairment related to gas transmission in 2023. However, removing special items, its adjusted EPS (earnings per share) stood at $0.64, a 1.6% increase from the previous year’s quarter. Higher mainline volumes, increased contributions from the Midcontinent and Gulf Coast segment due to higher volumes, and growth in the Canadian utility segment’s customer base and rate hikes drove its earnings. However, higher interest expenses offset some of the increases.
Meanwhile, the company also generated an adjusted EBITDA of $4.1 billion, representing a 5% increase from the previous year’s quarter. Its distributable cash flows rose 2.6% to $2.7 billion. The company’s financial position also looks healthy, with its liquidity at $23 billion as of December 31.
Now, let’s look at its growth prospects.
Enbridge’s growth prospects
Last year, Enbridge put around $2 billion worth of projects into service and acquired $3 billion of assets, which could boost its financials in the coming quarters. Besides, the company is continuing with its $24 billion secured capital program and expects to put $4 billion worth of projects into service annually for the next two years. Meanwhile, it is working on acquiring three utility assets in the United States for $12.8 billion and has already garnered $10 billion in secured assets. The company is hopeful of closing the deal this year.
The Calgary-based midstream energy company has met its guidance for 18 consecutive years. Now, it has provided optimistic 2024 guidance despite the challenging macro environment. The management expects its 2024 adjusted EBITDA to come in between $16.6 and $17.2 billion, with the midpoint representing a 2.4% increase from 2023. The midpoint of its DCF/share (discounted cash flows) guidance represents a 2.2% increase. The guidance does not include the contribution from the proposed acquisition of utility assets. Notably, the company is also expanding its presence in the renewable energy space, which is encouraging.
Investors’ takeaway
Supported by its solid underlying business and stable cash flows, Enbridge has been paying dividends for 69 years. It has also hiked its dividend for 29 consecutive years at a CAGR of 10%. It currently pays a quarterly dividend of $0.915/share, with its forward yield at 7.89%. Besides, it also trades at a reasonable valuation, with its NTM (next 12 months) price-to-earnings multiple at 16.6.
So, despite the increasing transition towards clean energy, I believe Enbridge would be an excellent buy, given its solid underlying business and expanding renewable assets.
