Enbridge (TSX:ENB) is among the most popular dividend stocks in Canada. In the last two decades, ENB stock has returned 266% to shareholders. After adjusting for dividends, total returns are closer to 782%. Comparatively, since March 2004, the TSX index has returned “just” 368% to shareholders in dividend-adjusted gains.
Despite its outsized returns, ENB stock is down 27% from all-time highs, increasing its dividend yield to 7.6%. Let’s see why Enbridge remains a top investment choice for dividend investors in 2024.
A diversified TSX giant
Enbridge is a well-diversified pipeline and energy infrastructure behemoth. Its tasty dividend yield, combined with a growing earnings base, has allowed it to comfortably outpace the broader markets and peers over the long term.
Its low-risk utility assets include gas transmission, clean energy, and midstream. Moreover, around 98% of its earnings are derived from long-term, inflation-linked contracts with investment-grade customers.
Its durable and stable earnings allowed Enbridge to increase cash flows by 10% annually in the last 29 years, which is exceptional given it is part of a cyclical sector. Enbridge aims to maintain its dividend payout between 60% and 70%, providing it with enough room to reinvest capital in growth projects, lower balance sheet debt, and target accretive acquisition, which should drive future cash flows higher.
Further, Enbridge has a reasonable leverage ratio, which is below its target range of 4.5 to five times.
Enbridge completes acquisition of the East Ohio Gas Company
In late 2023, Enbridge disclosed plans to acquire three gas utilities from Dominion Energy for $19 billion. Last week, Enbridge announced it closed the acquisition of the East Ohio Gas Company (EOG) from Dominion Energy. The gas utility will now be a part of Enbridge’s gas distribution and storage business unit.
The EOG is a single-state utility serving 1.2 million customers. Its portfolio of assets includes 22,000 miles of transmission, gathering, and distribution pipelines and underground storage. EOG is expected to contribute 40% of the total annualized earnings before interest, taxes, depreciation, and amortization from the three gas utilities that Enbridge has agreed to acquire.
Enbridge is optimistic the acquisition will diversify its business while enhancing the cash flow profile of its assets. The company’s natural gas utilities have strong, useful lives and are essential to providing safe, reliable, and affordable energy.
EOG should help Enbridge blend and extend its cash flow growth outlook by adding a steady, regulated investment, thereby supporting its long-term dividend profile.
Enbridge’s dividend growth should continue
Enbridge’s low-risk business and conservative balance sheet give it the flexibility to navigate an uncertain macro environment. The energy giant expects to invest roughly $8.5 billion each year, which should drive future cash flows and dividends higher.
It ended 2023 with a backlog of $25 billion in commercially secured capital projects. Enbridge is on track to invest between $6 billion and $7 billion each year to build these projects, which are expected to enter commercial service through 2028.
Enbridge’s backlog provides shareholders with earnings visibility. Analysis tracking ENB stock expects it to grow adjusted earnings by 5% annually in the next five years.
Priced at 16.5 times forward earnings, ENB stock trades at a discount of 12% to consensus price target estimates.
