Enbridge(NYSE: ENB) has been one of the steadiest companies in the energy sector over the years, and 2023 was its 18th straight year of achieving its financial guidance. It's well on its way to delivering on its objectives this year, given its strong showing in the first quarter.
That quarter's report once again displayed Enbridge's strength by underscoring the view that the utility and pipeline operator can continue paying an attractive and growing dividend. At 7.2%, it offers a significantly higher yield than the S&P 500 (1.4%). Add in its financial strength and growth prospects, and the company is an ideal option for those seeking passive income.
A strong start to 2024
Enbridge generated $5 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the first quarter and $3.4 billion of distributable cash flow (DCF). Adjusted EBITDA was up 11% from the year-ago period, while DCF rose 9% (and 4% on a per-share basis). Those are strong increases for such a large energy infrastructure company.
It benefited from strong liquids volumes, new customer additions, recently completed expansion projects, and acquisitions. While all four of the company's platforms performed well, its renewables segment stood out. Its adjusted EBITDA doubled, thanks to acquiring added interests in German offshore wind farms, the investment tax credits from its Fox Squirrel solar project in the U.S., and strong European wind-power resources.
Enbridge also reached a key milestone in the quarter, closing the acquisition of the East Ohio Gas Company, one of three gas utility acquisitions from Dominion that it expects to close on this year. That massive deal has been a near-term growth headwind because Enbridge pre-funded most of the purchase price by issuing stock and taking on debt. It will be a growth tailwind in the future, supplying extra sources of incremental stable income and earnings growth.
Adding more fuel for growth
The first quarter's strength gave management the confidence to reaffirm its 2024 financial guidance and long-term outlook. The company enhanced the clarity of that outlook in the quarter by adding several new expansion projects to its backlog:
- The Tennessee Ridgeline pipeline: Enbridge will invest $1.1 billion into building a gas pipeline to supply a new natural gas power plant in Tennessee.
- The Enbridge Ingleside Energy Center: The company will build 2.5 million barrels of additional storage capacity for around $100 million. It also agreed to acquire two marine docks and adjacent land for about $200 million.
- The Sparta pipeline: An investment of about $200 million to build offshore pipelines in the U.S. Gulf Coast to service the Sparta development by Shell and Equinor.
The company also announced the formation of a new joint venture to develop, own, and operate natural gas pipelines and storage capacity on the U.S. Gulf Coast. The deal will diversify its business, reduce risk, and supply added expansion opportunities. Enbridge is contributing its Rio Bravo Pipeline project to the joint venture.
The company now has around 25 billion Canadian dollars ($18.3 billion) of secured capital projects in its backlog, and it estimates these projects will drive around 3% annual earnings growth through 2028. Optimizations and cost savings will add another 1% to 2% to its bottom line each year.
Management estimates it will invest about $4.4 billion to $5.1 billion annually in secured capital projects. Given its strong free cash flow after paying dividends and its balance sheet strength, Enbridge will have about $730 million to $1.5 billion of added investment capacity each year.
It can use that flexibility to approve more high-return expansion projects, make bolt-on acquisitions, and repurchase shares at opportune moments. Finding investments to deploy its excess investment capital should drive 5% annual adjusted EBITDA growth over the long term.
This growth outlook supports its view that it can continue increasing its dividend. Enbridge has raised its payout every year for nearly three decades.
As solid as it gets
The company grew its earnings and growth prospects with a strong first quarter, putting it in prime position to continue increasing its high-yielding dividend in the coming years. With a firm financial foundation and predictable growth ahead, Enbridge is a bedrock income stock that investors can hold for the long haul.
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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Dominion Energy and Equinor Asa. The Motley Fool has a disclosure policy.
