Enbridge (TSX:ENB) is a North American energy infrastructure company that specializes in transporting oil and natural gas through its extensive pipeline network. Additionally, it operates three natural gas utility assets in the United States and 38 renewable energy facilities, with a total power-producing capacity of 7.2 gigawatts. Supported by its solid quarterly performances and improvement in broader equity markets, the company’s stock price has increased by 18.3% year to date.
Let’s assess its historical performance and growth prospects to determine buying opportunities in the stock.
Enbridge’s historical performance
Enbridge utilizes a tolling framework and long-term take-or-pay contracts to move oil and natural gas through its North American pipeline network. Additionally, its regulated utility assets and power-purchase agreement-backed renewable energy facilities provide stability to its financials. The company generates approximately 98% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) from regulated assets or long-term contracts, with about 80% of this amount linked to inflation. Also, its financials have no material exposure to commodity price fluctuations.
As a result, the Calgary-based energy company provides stable and predictable financial performance, supporting consistent returns even amid challenging market conditions. Over the last 20 years, the company has delivered returns of approximately 815% at an annualized rate of 11.7%. Additionally, the company boasts a 70-year history of dividend payments and has increased its dividend at a 9% annualized rate since 1995. The company currently distributes a quarterly dividend of $0.9425 per share, yielding an annual rate of 5.46%. Next, let’s examine its growth prospects.
Enbridge’s growth prospects
Oil and natural gas formed 56% of the energy mix in 2024. Despite the growing popularity of renewable and clean energy sources, OPEC (the Organization of the Petroleum Exporting Countries) predicts that oil and natural gas will form over 50% of the energy mix in 2050. Therefore, rising energy demand could drive the demand for Enbridge’s services. Amid the growing demand, the company plans to invest around $9 billion to $10 billion annually, pursuing its long-term growth opportunity of $50 billion that it set at the beginning of this year. In addition to organic growth, the company has also undertaken strategic acquisitions, including the acquisition of a 10% stake in Matterhorn Express Pipeline.
Amid these growth initiatives, Enbridge’s management expects its adjusted EBITDA and DCF (discounted cash flow)/share to grow at a mid-single-digit rate for the remainder of this decade. Additionally, the company has strengthened its financial position by lowering its net debt-to-EBITDA ratio from five at the beginning of this year to 4.7, which was also lower than the midpoint of its guidance. The company also follows a balanced capital allocation strategy, targeting a dividend payout ratio of 60-70% of DCF and deploying the rest toward growth initiatives. Therefore, the steady expansion of its operations ensures the sustainability of its future payouts.
Investors’ takeaway
The Bank of Canada has cut the benchmark interest rate by 25 basis points to 2.5%, while economists are predicting one more rate cut by the end of this year. Given its capital-intensive business, these rate cuts could benefit Enbridge. Additionally, the company’s valuation also looks reasonable, with its next-12-month price-to-sales multiple standing at 2.8. Considering its solid underlying businesses and healthy growth prospects, I expect the uptrend in Enbridge’s stock price to continue.
