Canadian equity markets have staged a strong recovery over the past few months, with the benchmark S&P/TSX Composite Index climbing more than 13% from its March lows. However, investors continue to face several headwinds, including elevated oil prices driven by renewed geopolitical tensions in the Middle East, persistent inflationary pressures, and concerns about slowing global economic growth.
In this environment, high-quality dividend stocks can help investors strengthen their portfolios while generating a dependable stream of passive income. With that in mind, let’s examine Enbridge (TSX:ENB), including its business outlook, recent financial performance, dividend track record, and long-term growth prospects, to assess its investment potential and outlook over the next three years.
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Enbridge’s business outlook
Enbridge is a diversified energy infrastructure company with more than 200 revenue-generating assets spanning crude oil and natural gas pipelines, natural gas utilities, and a growing portfolio of renewable energy projects. Backed by a regulated asset base and long-term contracted operations, its earnings are relatively insulated from economic cycles, market volatility, and commodity price fluctuations. In addition, approximately 80% of its earnings are protected by inflation-indexed mechanisms, helping offset the impact of rising costs.
This resilient business model has enabled Enbridge to consistently deliver strong financial results, meeting or exceeding its financial guidance for 19 consecutive years. The company has also generated exceptional long-term shareholder returns, delivering approximately 1,025% over the past 20 years, equivalent to an annualized return of 12.9%. Investors also benefit from Enbridge’s dependable and growing dividend. The company has paid dividends uninterruptedly for 70 years and has raised its payout for the last 31 consecutive years. Its forward dividend yield is currently 5%.
Enbridge also maintains a solid financial position, ending the first quarter with a rolling 12-month debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 5.0 and liquidity of $12.7 billion. This financial strength provides ample flexibility to fund its capital program and pursue additional growth opportunities.
Let’s now examine the company’s long-term growth prospects.
Enbridge’s growth prospects
Growing oil and natural gas production across North America, supported by continued improvements in well productivity and operational efficiency, is increasing demand for Enbridge’s critical infrastructure and services. To capitalize on these favourable industry trends, the company has identified approximately $50 billion in growth opportunities and plans to invest $10–$11 billion annually to advance its capital program.
Supported by these investments, management expects earnings per share and distributable cash flow per share to increase at an annualized rate of approximately 5% through the end of the decade. The company also expects to return $40–$45 billion to shareholders over the next five years, reflecting confidence in its long-term cash flow outlook and reinforcing the sustainability of its growing dividend.
Investors’ takeaway
Backed by its resilient financial performance and attractive long-term growth prospects, Enbridge has generated impressive shareholder returns over the past three years, with its stock gaining approximately 92%, representing an annualized return of 24.5%. Despite this strong performance, the stock continues to trade at reasonable valuations, with next-12-month (NTM) price-to-sales and price-to-earnings multiples of 2.9 and 26.5, respectively.
If Enbridge were to match its annualized return over the past three years, its share price could reach approximately $150.40 over the next three years. Even under a more conservative scenario based on its average annualized return over the past 20 years, the stock could climb to around $112.10 during the same period, which looks reasonable.
Given its resilient business model, consistent dividend growth, and attractive long-term return potential, I believe Enbridge remains an excellent investment for long-term investors, particularly in today’s uncertain market environment.
