Enbridge (NYSE: ENB) is North America’s largest energy infrastructure operator. The Canadian pipeline and utilities company transports 30% of the oil produced in North America and 20% of the gas consumed in the United States, and operates the continent’s largest gas utility. Additionally, the company is one of the world’s leading producers of renewable energy.
These assets help Enbridge pay a well-backed dividend, currently yielding about 7%. Meanwhile, Enbridge has a lot of tangible growth potential, which, combined with the dividend, should help it generate low double-digit annual profits. Total Revenue Over the next few years, these characteristics make Enbridge a “first-choice investment opportunity,” CEO Greg Ebell said in the company’s second-quarter earnings call.
Solid as a Rock
Enbridge recently reported strong second-quarter results. The company’s adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) The stock price rose 8% (a new record for the period) and cash flow per share increased 3%.
But more importantly, the company made significant progress on a strategic priority during the quarter: Enbridge shut down the second of its three natural gas pipelines. utility Acquisitions during this period included the acquisition of Questar; Dominion The company also filed for settlements with regulators, creating a clear path to close its third and final Dominion Utilities Acquisition (PSNC) in the third quarter and has completed all financing required for these transactions. These utility acquisitions will further enhance its cash flow stability and diversification.
Despite prepaying for the acquisition, Enbridge ended the second quarter at 4.7 times earnings. Leverage Ratiois well within its target range of 4.5x to 5.0x. The company’s credit rating agencies gave the company’s balance sheet their stamp of approval during the quarter, reinforcing their “long-held view that our balance sheet is strong,” Ebel said. Meanwhile, leverage will decline over time as the company maximizes the benefits of its utility acquisitions and gains further financial flexibility.
Combined with a conservative dividend payout ratio (60%-70%), Enbridge has billions of dollars of headroom to invest annually. Its cash flow after dividends allows it to self-fund and leverage its ample balance sheet space to fund expansion needs. balance of Future growth capital needs.
These factors have led to Enbridge’s high dividend Very robust Foundation. They Except for everything The company can maintain its stellar record of paying dividends: it has done so for over 69 years and has increased its dividend payments every year for 29 consecutive years.
Further growth is expected
The utility acquisitions will be accretive to earnings beyond 2024. Enbridge raised its full-year 2024 adjusted EBITDA outlook while maintaining its cash flow per share forecast as the impact of pre-financing of the transactions will offset incremental cash flows. The boost will be even more meaningful next year as the company enjoys the full benefits of incremental revenue and cash flow. Meanwhile, Enbridge is investing in expansion and is expected to grow over the next few years. the operation.
These utility expansions are part of Enbridge’s C$24 billion ($17.3 billion) commercial projects in the pipeline. The company recently added several more projects, strengthening its long-term growth prospects. These new additions include:
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Blackcomb Pipeline: Enbridge and its partners are building a 2.5 billion cubic feet per day pipeline to increase gas transportation capacity in South Texas.
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Grey Oak Pipeline: The company is planning to produce 120,000 barrels per day. This oil pipeline expansion.
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Orange Grove Solar: Enbridge is investing $250 million to build a 130-megawatt solar farm. AT&T They agreed to purchase 100% of the electricity they produce.
Enbridge has ample financial capacity to comfortably fund its backlog of secured capital projects, allowing it to continue to approve new projects and make add-on acquisitions as opportunities arise. The company expects these investments to be accretive to its cash flow per share at a rate of 3% to 5% annually over the next several years.
A first-class investment opportunity
Enbridge’s low-risk business model supports the company’s dividend and expansion plans, which should provide a solid 7% yielding income stream and allow the company to grow its cash flow by 3%-5% per year (supporting a similar dividend growth rate). Add this all up, and Enbridge has the prospect of delivering total returns of 10%-12% per year over the next few years. This is an excellent return from such a low-risk stock and makes it stand out as a great long-term investment opportunity.
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Matt DiLallo The Motley Fool has invested in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool Disclosure Policy.
With a 7% dividend yield, this stock should be a top pick for income and upside Originally published on The Motley Fool
