Investing in blue-chip dividend stocks should help you generate market-beating gains over time. Generally, blue-chip companies enjoy multiple competitive moats that translate to steady cash flows and earnings, a portion of which is distributed to shareholders via dividends. It’s crucial to identify companies that are positioned to grow their cash flows and support consistent dividend hikes, which enhances your effective yield over time.
One such TSX dividend stock is Enbridge (TSX: ENB), which currently offers you a forward yield of 7.4%. Enbridge is a diversified energy infrastructure company that has already created massive wealth for shareholders. For instance, you could purchase 79 shares of Enbridge with a $1,000 investment back in 2004. These shares would have helped you earn $36.34 in dividends over the next 12 months, indicating a forward yield of 3.6%. Today, 79 shares would earn you $290.72 in annual dividends, increasing your effective yield to almost 30%.
In the last 20 years, Enbridge has raised dividends by more than 11% annually, which is exceptional for an energy company. In this period, the TSX energy heavyweight has returned more than 870% to shareholders after adjusting for dividend reinvestments. Despite these stellar gains, ENB stock trades 25% from all-time highs, allowing you to buy the dip. Let’s see if you should buy ENB stock on a pullback.
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Enbridge delivers solid Q1 results
Despite a volatile macro environment, Enbridge increased its EBITDA (earnings before interest, tax, depreciation, and amortization) by 11% and DCF (distributable cash flow) by 4% year over year in the first quarter (Q1) due to strong asset performance across liquids, gas transmission, and renewables.
Investors should note that Enbridge is sheltered from commodity price exposure as roughly 98% of its earnings are tied to cost of service or take-or-pay contracted assets. Moreover, 80% of its EBITDA is derived from assets protected against inflation, allowing Enbridge to generate cash flows across business cycles.
Enbridge’s liquids pipelines business delivered high utilization levels, as the Mainline transported over 3.1 million barrels per day in Q1. For the rest of 2024, Enbridge expects an average throughput of three million barrels per day.
In the Permian basin, Enbridge completed constructing four new storage tanks bringing total storage capacity to 18 million barrels. The company has sanctioned an additional five tanks, which will add 2.5 million barrels of storage capacity by 2025.
Enbridge expects the buildout of data centers and the generative artificial intelligence players to drive a material increase in power generation, which would be met by a combination of natural gas and renewables. As this sector evolves, Enbridge is well poised to serve the increased demand through a vast footprint of assets connected to key supply basins.
Is Enbridge stock a good buy right now?
Investors were worried about Enbridge’s big-ticket acquisition of three natural utilities from Dominion Energy for a purchase price of $19 billion. To complete the acquisition, Enbridge would have to raise debt, which might negatively impact cash flows due to higher interest rates.
However, Enbridge ended Q1 of 2024 with a payout ratio of less than 60%, which provides it with enough flexibility to service its debt and de-lever its balance sheet.
While it might be difficult for ENB stock to replicate its historical gains, the TSX behemoth should maintain its dividend due to predictable cash flows and a strong balance sheet. Analysts remain bullish on ENB stock and expect it to surge over 8% in the next 12 months.
