The past 12 months have been highly rewarding for Canadian investors, with the S&P/TSX Composite Index climbing 31%. Strength in metal prices, moderating inflation, and relatively low interest rates have supported the broader market rally. That said, ongoing geopolitical tensions, commodity price volatility, and stretched valuations remain key risks for investors.
If these uncertainties are a concern, it may be prudent to reinforce your portfolio with high-quality companies that are less sensitive to economic swings and generate stable, predictable cash flows. Against this backdrop, let’s take a closer look at Enbridge (TSX: ENB), which operates a largely contracted midstream energy business. By examining its historical performance, dividend-growth track record, valuation, and long-term growth prospects, we can assess whether the stock offers an attractive buying opportunity below $71.
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Enbridge’s business outlook and fourth-quarter performance
Enbridge operates a diversified energy infrastructure business with a vast pipeline network that transports roughly 30% of the crude oil produced in North America and about 20% of the natural gas utilized in the United States. In addition, it operates three U.S. natural gas utility businesses and 41 power-generating facilities with a combined capacity of 7.2 gigawatts.
Approximately 98% of Enbridge’s adjusted EBITDA is derived from long-term cost-of-service contracts, with nearly 80% of those agreements indexed to inflation. This highly contracted and inflation-protected business model makes its earnings and cash flows relatively resilient to economic cycles and commodity price fluctuations. As a result, the company has met its financial guidance for 20 consecutive years and increased its dividend for 31 straight years. It currently pays a quarterly dividend of $0.97 per share, yielding about 5.49% at current prices.
In its most recently reported fourth quarter, Enbridge generated adjusted EBITDA of $5.21 billion, up 1.6% year over year. Over the past 12 months, the company placed $5 billion worth of projects into service. Contributions from these new assets, along with favourable rate revisions and lower maintenance expenses, supported EBITDA growth. Meanwhile, adjusted earnings per share (EPS) rose 17.3% to $0.88.
With this performance in mind, let’s now examine Enbridge’s growth prospects.
Enbridge’s growth prospects
Enbridge has identified approximately $50 billion in growth opportunities across its four business segments through the remainder of this decade. The company plans to invest around $10 billion annually to advance these projects, which could enhance its financial performance and cash flow generation in the coming years.
Management projects that adjusted EBITDA, adjusted EPS, and distributable cash flow per share will grow at mid-single-digit rates for the rest of the decade. Backed by visible cash flows and a substantial capital program, Enbridge also expects to return between $40 billion and $45 billion to shareholders over the next five years through dividends and share buybacks.
Investors’ takeaway
Enbridge has historically delivered solid value to shareholders. Over the past 20 years, the company has generated an average annual total shareholder return of 12.1%, outperforming the broader market.
While the stock has produced a healthy 22.5% total return over the last 12 months, it has trailed the broader equity markets during this period. From a valuation standpoint, the shares appear reasonably priced, trading at the next 12-month price-to-sales and price-to-earnings multiples of 2.5 and 23.6, respectively.
Given its highly contracted business model, a visible growth pipeline, a reasonable valuation, and an attractive dividend yield, Enbridge appears well-positioned and could represent a compelling buy at current levels.
