Utility stocks are some of the most reliable and low-risk equities on the TSX index. Boasting high yields, consistent dividend growth, and government-regulated revenue streams, they are like little monopolies. While this “monopoly” status has not led to all TSX utilities being top performers, it has lifted some of them. In this article, I explore one TSX energy/utility stock that yields 6.1% and powers half the country’s natural gas-fueled homes, businesses, and facilities.
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Enbridge
While you might be surprised to see pipeline giant Enbridge Inc (TSX:ENB) described as a utility, it is in fact one. Specifically, it owns a natural gas utility that serves 50% to 53% of Canada’s natural gas users, depending on the count. The company is especially dominant in Ontario, where it supplies 75% of the province’s natural gas.
How much money Enbridge’s natural gas business makes
Enbridge’s natural gas business is part of a larger company that is mainly known for operating crude oil pipelines. Its natural gas business – which also relies on pipeline transportation – is a natural extension of its main business.
How much does ENB’s natural gas business make? We can gauge that by looking at the company’s most recent annual report.
In the first quarter of 2021, Enbridge’s natural gas utility segment earned $1.6 billion in adjusted earnings before interest, tax, depreciation and amortization (EBITDA). That was 27.5% of the company’s total EBITDA for the period. The trend was similar for the full year 2024, when the company’s gas utility earned $2.9 billion in EBITDA or 15% of the company’s total. So, Enbridge’s vast natural gas utility business is making a sizable contribution to Enbridge as an overall enterprise.
Overall performance
Enbridge has been delivering satisfactory financial results lately.
In the trailing 12-month (TTM) period, the company had a 42.5% gross profit margin, an 18% operating profit margin, a 10% net income margin, and a 5% free cash flow (FCF) margin. The FCF margin was held back somewhat by high acquisition-related capital expenditures (CAPEX), but most of the other margins were healthy.
Enbridge delivered a more mixed showing on growth in the TTM period. In it, the company’s revenue increased 43% and its operating income grew 19%, but its net income barely increased and its FCF shrank about 10%. Keep in mind the acquisition-related CAPEX, though: these costs are not likely to recur.
Valuation
Last but not least, we can look at Enbridge stock from the perspective of valuation ratios. In the TTM period, Enbridge traded at multiples that could be described as “about average” for the TSX. Averages of these multiples include:
- P/E ratio: 21.
- Price/sales ratio: 2.2.
- Price/book ratio: 2.2.
- Price/cash flow ratio: 10.7.
So, Enbridge is not a rock-bottom bargain, but it is not especially pricey either.
Foolish takeaway
Taking everything into account, I think Enbridge is an “OK” dividend play today. The company’s stock yields 6.1% and its dividend has been growing over time. The payout ratio – 126% – is a little on the high side, but the cash flow payout ratio (using operating cash flow) is only 60%. It’s a mixed picture, but I wouldn’t imagine those going long Enbridge will lose their shirts.
