Canada’s energy infrastructure giant Enbridge (TSX:ENB) is among the most popular dividend stocks in North America. Enbridge currently pays shareholders an annual dividend of $3.66 per share, translating to a tasty dividend yield of 7.3%.
Moreover, these payouts have risen by 10% annually since 1995, significantly enhancing the yield at cost over three decades. In this period, ENB stock has returned 1,200% to shareholders. After adjusting for dividend reinvestments, cumulative returns are closer to 4,500%.
Today, Enbridge is a diversified TSX giant valued at a market cap of $106 billion, which means it will be impossible for the company to replicate its historical gains. But can the TSX Dividend Aristocrat still continue to raise dividends across market cycles? Let’s dive deeper.
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The bull case for Enbridge stock
Enbridge owns and operates a wide network of pipelines across North America transporting commodities such as oil, natural gas, and clean energy. Despite a challenging macro environment, Enbridge increased adjusted earnings by 8% and EBITDA (earnings before interest, tax, depreciation, and amortization) by 11% year over year in the first quarter (Q1) of 2024, showcasing the resiliency of the company’s cash flows.
Enbridge emphasized that its acquisition of the East Ohio Gas Company expanded its gas utility platform, while regulatory approval of the Mainline Tolling Settlement and a widening base of renewable energy assets contributed to earnings growth in the March quarter.
The Ohio Gas utility serves 1.2 million customers and includes rate structures that decouple revenue from volumes, resulting in lower earnings seasonality. Around 80% of the capital is subject to recovery riders, allowing Enbridge Gas Ohio to recover capital within a few months.
Enbridge confirmed it has secured 85% of the financing required to fund its $19 billion acquisition of three utilities from Dominion Energy. The financing includes a combination of bond issuances, capital recycling, and ATM (at-the-market) issuances and should be completed by the end of 2024.
A blue-chip dividend stock
Enbridge increased its distributable cash flow (DCF) per share by 4% year over year due to strong asset performance across liquids, gas transmission, and renewables. Its debt-to-EBITDA ratio of 4.6 times is well within management guidance, and a higher cash flow should help the company reduce balance sheet debt or target accretive acquisitions.
Enbridge is largely immune to commodity price fluctuations as 98% of its earnings are generated from the cost of service or take-or-pay contracted assets. Further, 80% of its EBITDA is earned from assets that are protected against inflation.
Enbridge ended Q1 with a DCF per share of $1.70, indicating a payout ratio of 54%, given it pays shareholders a quarterly dividend of $0.92 per share. In the last five years, Enbridge has distributed $34 billion to shareholders via dividends, and it expects the payout to rise to $40 billion over the next five years.
Enbridge aims to maintain a payout range of between 60% and 70%, providing it with the flexibility to spend at least $6 billion each year on growth projects and raise payouts further. Basically, Enbridge is positioned to grow its dividends between 3% and 5% through 2025.
