Amid a low interest rate environment, investing in quality dividend stocks would be an ideal strategy to boost your passive income. Along with delivering a stable passive income, dividend-paying companies are less prone to market volatility due to their consistent payouts, thus providing stability to your portfolios. Therefore, investors should look at investing in Dividend Knights, which not only deliver reliable dividend payouts but also raise their dividends consistently. Against this backdrop, I believe Enbridge (TSX:ENB) would be an ideal buy.
Enbridge’s historical performance
Enbridge is an energy infrastructure company that transports oil and natural gas across North America through its pipeline network. It also has a solid presence in North American natural gas utility and renewable energy businesses. It operates its pipeline business under a cost-of-service framework and long-term take-or-pay contracts, thus shielding its financials from market volatility and commodity price fluctuations. Its low-risk utility businesses and power-purchase agreement-backed renewable assets stabilize its financials and cash flows.
Meanwhile, the company delivered an impressive first-quarter performance earlier this month, with its adjusted EPS (earnings per share) and EBITDA (earnings before interest, tax, depreciation, and amortization) growing by 12% and 17.6%, respectively. The contribution from acquiring the three utility assets, higher mainline throughput, favourable rate settlements, higher distribution charges due to rate increases and customer base expansion, and favourable currency translation boosted its financials.
Amid its reliable financials, Enbridge has delivered an average total shareholder return of 11.8% over the last 20 years, outperforming the broader equity markets. The company has consistently rewarded its shareholders by paying dividends for 70 years. It has also raised its dividends at a 9% CAGR (compound annual growth rate) since 1995 and currently offers an attractive forward dividend yield of 6.01%. Now, let’s look at its growth prospects.
Enbridge’s growth prospects
Moreover, rising energy demand and an increased transition towards renewable energy sources have created a long-term growth potential for Enbridge. The company’s management projects a $50 billion growth opportunity across its four business segments—liquids pipelines, gas transmission, gas distribution and storage, and renewable power—through 2030. The company has also planned to make a disciplined capital investment of $9-$10 billion annually to expand its asset base and drive its financials.
Meanwhile, Enbridge’s debt-to-EBITDA stood at 4.9 at the end of the first quarter. The company’s management expects the contributions from three utility asset acquisitions to strengthen the ratio in the coming quarters. At the end of the first quarter, the company’s liquidity stood at a healthy $ 13.4 billion and is well-equipped to support its growth prospects.
Amid these growth initiatives, Enbridge’s management expects EPS growth of 4-6% annually through 2026 and 5% thereafter. The company also hopes to raise dividends at a 3% CAGR through 2026 and 5% thereafter.
Investors’ takeaway
Enbridge has delivered impressive returns of over 25% in the last 12 months, beating the broader equity markets. The company’s solid quarterly performances and falling interest rates have boosted its stock price. Despite the recent increase in its stock price, the company’s valuation looks reasonable, with its next-12-month price-to-sales multiple at 2.9. Considering all these factors, I believe Enbridge would be an ideal buy to earn a reliable passive income.
