When it comes to investing in Canada, there might not be a better, more popular stock to own both for passive income and long-term growth potential than Enbridge (TSX:ENB).
Enbridge is a massive energy giant with a market cap of more than $130 billion and essential operations that serve North America.
In fact, among other assets, Enbridge stock operates the largest liquid pipeline system in North America, transporting nearly a third of all the oil produced. It also transports roughly 20% of all the natural gas consumed in the U.S.
Moreover, on top of its traditional energy assets, Enbridge continues to invest in building up its exposure to renewable energy. For example, it currently owns 23 wind farms, 14 solar energy facilities and much more.
So, let’s look at how Enbridge is performing today and where the stock can be in three years to determine if it’s worth an investment right now.
Where will Enbridge stock be in three years?
One of the main reasons why Enbridge is such a high-quality stock and such a popular investment among Canadians is due to the low-risk nature of its operations and the fact that it’s consistently growing.
Enbridge’s operations generate enough cash flow not only to continue increasing its dividend each year but also to continue investing in future growth.
It believes its low-risk cash flow growth is ideal for supporting consistent dividend growth and aims to increase the dividend annually while keeping its payout ratio at 60% to 70% of its distributable cash flow.
Furthermore, because its operations are essential and Enbridge mitigates as much risk as possible, it now has a lengthy track record of consistency with 29 straight years of dividend increases.
In fact, Enbridge generates 98% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost-of-service or contracted assets, significantly reducing the dividend stock’s exposure to volatile commodity prices.
This stability is further supported by protections on 80% of its cash flow through regulated revenues and long-term contracts, ensuring predictable income even during market fluctuations.
These risk-mitigating measures allow Enbridge stock to earn billions in cash flow each year. In fact, Enbridge has distributed $34 billion in dividends to investors in just the last five years. Furthermore, over the next five years, it expects to pay out over $40 billion as it continues to increase its dividends annually.
How will the energy giant achieve its growth targets?
To consistently increase its revenue, cash flow, earnings and, most importantly, the dividend is no small feat. In fact, Enbridge stock consistently has multiple growth projects that it’s either proposing or constructing to ensure the continuous expansion of its operations over the long haul.
For example, the Orange Grove Solar Project, a 130-megawatt (MW) solar facility in Texas, is currently under construction and expected to be operational by mid-2025. Similarly, the Ingleside Phase 7 Tank Expansion Project in Texas began construction in September 2024. It will add another five 495,000-barrel crude oil tanks, with the first tank anticipated to be in service by late 2025.
Not to mention, Enbridge has several projects proposed or under review, such as the Aspen Point Program, which aims to expand its BC Pipeline to increase natural gas capacity by 2026.
It’s also in the midst of its current capital plan, where Enbridge has been targeting 7% to 9% annual increases to its EBITDA from 2023 through 2026. Furthermore, after 2026, Enbridge stock expects to increase its EBITDA by 5% per year from a combination of organic growth, small, tuck-in acquisitions and cost savings and optimizations.
These estimates are roughly right in line with what analysts are expecting. In fact, over the next three years, analysts expect Enbridge to grow its EBITDA at a compound annual growth rate of 7.3%
So, when you consider Enbridge’s reliability combined with its consistent growth potential, it’s undoubtedly one of the best stocks in Canada. Plus, its current dividend yield of just over 6% is in line with its 10-year average yield.
Therefore, with interest rates still declining and one of the best dividend stocks in Canada still trading at a compelling valuation, there’s no question that Enbridge is one of the best stocks to buy, not just for the next three years, but to hold for decades to come.
