There is no sure thing in investing. However, Enbridge (NYSE: ENB) has been a very safe bet over the decades. The Canadian pipeline and utility company has paid dividends for more than 69 years, including increasing its payout for the last 29 straight years. Meanwhile, the company is on track to achieve its financial guidance for the 19th year in a row.
The energy infrastructure giant continues to take steps to enhance its reliability. Yielding 6.5%, it's a great stock to own for those seeking reliable income and growth.
The reliable growth continues
Enbridge recently reported its third-quarter results. The pipeline and utility operator produced $4.2 billion Canadian ($3 billion) of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the period. That was 8% higher than last year. Fueling that growth was strong utilization across its existing assets, recently completed expansion projects, and the impact of acquisitions.
Enbridge closed the acquisition of three natural gas utilities this year, which are enhancing its ability to deliver reliable growth. CEO Greg Ebel commented in the third quarter-earnings release, "The assets are a perfect fit within Enbridge's existing low-risk business model, offer reliable cash flow, and come with embedded quick-cycle growth opportunities."
The company's solid showing in the third quarter positions the company "to achieve full-year guidance for the 19th year in a row," the CEO stated, adding, "We expect to be near the top of our 2024 EBITDA range, and close to the midpoint of our original DCF (distributable cash flow) per-share guidance range."
Built for durability
The gas utility acquisitions will enhance the stability of the company's earnings profile. Because it now gets 98% of its cash flows from predictable cost of service and contracted assets, it has negligible commodity price exposure and limited volume impacts. Those factors give the company significant visibility into its cash flows.
Enbridge pays out 60% to 70% of its stable and predictable cash flow to investors in dividends. That gives it a nice cushion while allowing it to retain billions of dollars in excess free cash flow each year to fund its continued growth. In addition, the company has a strong investment-grade balance sheet backed by a leverage ratio in the lower end of its 4.5-to-5.0 target range.
The company estimates it has CA$8 billion to CA$9 billion ($5.7 billion to $6.5 billion) of annual investment capacity between its excess free cash and balance sheet availability. It has lined up about CA$27 billion ($19.4 billion) of commercial secured capital projects that it expects will come online through 2029. The company anticipates spending about CA$6 billion-CA$7 billion ($4.3 billion-$5 billion) annually on these secured projects. That leaves it with extra investment capacity to sanction additional expansion projects, make bolt-on acquisitions, and strengthen its balance sheet.
The company's investment capacity and commercial project backlog drive its view that it can grow its EBITDA by around a 7% to 9% annual rate through 2026 and roughly 5% per year after that. Meanwhile, it sees cash flow-per-share growth of approximately 3% annually through 2026 and then about 5% per year beyond that year. That visible earnings growth should enable Enbridge to continue increasing its dividend.
A reliable way to make a steady return
Enbridge is as predictable as they come, and investors can bank on the company's high-yielding dividend, which will probably grow by around the same rate as its cash flow in the future. That would set investors up to earn double-digit annual returns. That's a nice outcome from such a reliable investment.
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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
