Can Enbridge Sustain its Dividend Growth Through 2030?

Canadian energy giant Enbridge (TSX: ENB) is among the most popular dividend stocks on the TSX. Valued at more than $100 billion by market cap, Enbridge currently pays shareholders an annual dividend of $3.66 per share, which translates to a forward yield of 6.7%.

While Enbridge is part of the highly cyclical oil and gas sector, it has increased its dividends every year since 1995. Its dividend payout has risen at a compound annual growth rate of 10% during this period.

An expanding base of cash-generating assets and a steady stream of cash flow have allowed the TSX dividend stock to deliver outsized gains to shareholders. Since September 2004, ENB stock has returned “just” 311% to investors. However, if we account for dividend reinvestments, cumulative returns are much higher at 910%.

As dividend payouts are not guaranteed, let’s see if Enbridge can continue to sustain its dividend growth through 2030.

Enbridge is well-diversified

Enbridge has four primary business segments that include the following:

• Liquid Pipelines: It is the largest pipeline system in North America, transporting around 30% of the total crude oil produced in the continent.
• Gas Transmission & Midstream: The business delivers 20% of the natural gas consumed in the U.S., serving 170 million people.
• Gas Distribution & Storage: Its recent acquisitions will create the largest natural gas utility in the U.S.
• Renewable Power: With 5.3 gigawatts of renewable capacity, Enbridge is gaining traction in the clean energy segment.

Here are some interesting numbers for Enbridge investors:

• Around 98% of its cash flows are contracted.
• More than 95% of its customers are investment grade.
• Around 80% of its earnings before interest, tax, depreciation, and amortization (EBITDA) has inflation-linked protections.
• Just 5% of its debt portfolio is tied to floating rates.

A strong performance in 2024

In the first six months of 2024, Enbridge has reported an adjusted EBITDA of $9.28 billion, up from $8.46 billion last year. Its distributable cash flow has risen from $2.94 per share to $2.97 per share in this period, indicating a payout ratio of 62%, providing the energy giant with enough room to reinvest in acquisitions, raise dividends further, and lower long-term debt.

Last year, Enbridge disclosed plans to acquire three natural gas utilities from Dominion Energy for $19 billion. The planned acquisitions will be completed by the end of 2024, further diversifying Enbridge’s cash flow and lowering its existing business risk profile.

Enbridge aims to preserve its financial strength and flexibility by maintaining a payout ratio of less than 70%. According to Enbridge, stable cash flow growth supports its reliable dividend increases, allowing it to deploy investment capacity towards enticing growth projects.

Enbridge has an annual investment capacity of between $8 billion and $9 billion which should drive future cash flows and dividends higher.

The Foolish takeaway

While it’s unlikely for Enbridge to replicate its historical dividend growth going forward, its solid business model, accretive acquisitions, and a lower interest rate environment should help it expand the dividend payout by 3% to 5% annually through 2030, which should enhance the effective yield at cost for shareholders.