Could Enerflex Become the Next Enbridge?

Enbridge is a high-dividend TSX stock that has created massive wealth for shareholders. Here’s one TSX stock that can outpace Enbridge.

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Enbridge (TSX:ENB) is a large-cap energy infrastructure giant that has created massive wealth for shareholders. In the last 20 years, Enbridge has returned close to 870% to shareholders after adjusting for dividends. Comparatively, the TSX index has returned “just” 404% since May 2004.

Despite its outsized gains, Enbridge offers a tasty dividend yield of 7.3%, given it pays shareholders an annual dividend of $3.66 per share. Moreover, Enbridge has raised its dividends by 10% annually on average in the last 29 years, enhancing the yield at cost significantly.

Enbridge stock will remain a top investment choice for income-seeking investors in 2024 due to its resilient and well-diversified cash flows.

Is Enbridge stock a good buy right now?

Despite an uncertain macro environment, Enbridge reported adjusted earnings of $2 billion or $0.92 per share in the first quarter (Q1) of 2024, an increase of 8% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $5 billion, an increase of 11% compared to $4.5 billion in the year-ago period.

Enbridge reported operating cash flow of $3.2 billion and distributable cash flow of $3.5 billion. Given its outstanding share count, Enbridge paid shareholders quarterly dividends of $1.95 billion, indicating a payout ratio of 56%, providing the company with the flexibility to target acquisitions and lower debt.

In the last five years, Enbridge has paid $34 billion to shareholders via dividends and aims to increase the amount to $40 billion through 2028.

Is Enerflex stock undervalued?

As it will be difficult for Enbridge to replicate its historical gains, you can consider investing in Enerflex (TSX:EFX), a small-cap dividend-paying energy infrastructure company.

Valued at $881 million by market cap, Enerflex is a global provider of energy infrastructure and energy transition solutions. It deploys natural gas, low-carbon, and treated water solutions from modularized products and services to integrated custom solutions.

In Q1 of 2024, Enerflex reported revenue of US$638 million, up from US$610 million in the year-ago period. It attributed higher sales to its energy infrastructure product line, where Enerflex expanded the scope and term of an existing build-own-operate-maintain contract in the eastern hemisphere. The contract supports the expansion of the company’s treated water solutions business and increases its presence in Oman.

Enerflex’s engineered systems business ended Q1 with bookings of US$420 million, bringing the total backlog to US$1.3 billion and providing investors with strong visibility into future revenue generation and business activity. Additionally, Enerflex emphasized that US$1.6 billion of contracted revenue tied to its energy infrastructure assets will be recognized in the coming years.

Enerflex ended Q1 with an operating cash flow of US$101 million and a free cash flow of US$78 million, allowing it to pay shareholders a quarterly dividend of $0.025 per share. Comparatively, it paid less than US$3.5 million to shareholders via dividends, indicating a payout ratio of less than 5%.

Enerflex used the excess cash to repay long-term debt totaling US$72 million as it ended Q1 with a net debt of $743 million, including $110 million in cash. Enerflex stated its net-debt-to-EBITDA ratio was 2.2 times, much lower than the 2.9 times in the year-ago quarter.

Enerflex stock is priced at 25 times forward earnings, which might seem expensive for an energy company. However, it’s on track to more than double its adjusted earnings from $0.28 per share in 2024 to $0.65 per share in 2025.

Analysts remain bullish and expect the TSX dividend stock to surge almost 50% in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Enbridge and Enerflex. The Motley Fool has a disclosure policy.

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