This Stock Offering a 6% Dividend Yield is an Obvious Choice for Income Seekers
Enbridge (symbolized as ENB with a 1.62% rise) boasts an impressive history of providing dividends within the energy sector. This Canadian pipeline and utility operator has been distributing dividends for an impressive 69 years and more remarkably, has increased its payouts on an annual basis for a staggering 29 consecutive years.
The energy company currently provides a dividend return exceeding 6%, making it an attractive option compared to other income sources. Enbridge's combination of yield, growth, and reduced risk levels, makes it an enticing stock to purchase for income-focused investors.
A distinguished dividend stock
Enbridge CEO, Greg Ebel, emphasized the company's dividend during its recent third-quarter earnings call: "Enbridge is built on a foundation of low-risk business operations that prove successful in all market conditions. This has enabled us to deliver growing dividends for 29 years, placing us among the select few Dividend Aristocrats (a trademark of Standard & Poor's Financial Services LLC)."
Indeed, Enbridge is one of the hardly few companies in the global market to maintain a track record of 25 years or more of consecutive dividend increases. This is particularly impressive in the energy sector given the volatile nature of commodity prices.
During the call, Ebel discussed the factors that contribute to the company's ability to consistently deliver dividend growth, mentioning that:
Among the crucial facets that contribute to our Dividend Aristocrat status and sustain our 29-year streak of dividend growth are our highly contracted cash flows that exhibit minimal volatility, enabling us to predictably pay and increase dividends. Our robust investment-grade credit ratings from the top 4 rating agencies showcase the strength of our balance sheet and the low-risk nature of our operations. Our negligible commodity price exposure sets us apart from many of our midstream peers.
Enbridge's pipeline and utility operations yield incredibly stable and reliable cash flow. Nearly 98% of its earnings stem from long-term, fixed-rate contracts and cost-of-service agreements. This offers Enbridge a considerable degree of visibility into its cash flows, given its minimal exposure to commodity price volatility. Enbridge is on course to achieve its 19th consecutive year of fulfilling its annual financial targets.
The company also boasts a strong financial profile, with investment-grade credit and a modest debt-to-equity ratio. Its dividend payout ratio falls between 60% and 70% of its steady cash flows, providing it with billions of dollars in annual investment capacity. This aids its belief in its ability to continue growing.
An appealing yield
Ebel also underscored another essential aspect of the company's dividend: "Enbridge provides an appealing dividend yield that surpasses the yields from many alternative investment vehicles. The 10-year Canadian and U.S. treasuries yield around 3% and 4%, respectively, while major benchmark indexes, such as the TSX 60 and the S&P 500, yield approximately 3% and 1%, respectively."
With its current yield surpassing 6%, investors stand to generate significantly more income by investing in Enbridge. For instance, $1,000 invested in Enbridge's stock would generate about $60 in annual dividend income. This contrasts with $30-$40 in interest income associated with investing the same amount in government bonds and $10-$30 in dividend income derived from an index fund.
A promising outlook for growth
Finally, the CEO emphasized:
And regarding EBITDA growth, we expect it to be higher over the next few years, approximately 7% to 9%, due to our core business performance, new assets coming online, strategic acquisitions, and the contributions of our acquired utilities. ... Overall, our business model is set up to thrive in all market conditions and yield predictable results. Despite the volatile world, Enbridge sees increased potential for long-term growth backed by strong energy infrastructure fundamentals and notably rising power demand.
Enbridge anticipates ambitious earnings growth in the short term, partly driven by its transformative acquisitions of three natural gas utilities from Dominion. Meanwhile, it has solid long-term growth prospects as a result of its extensive capital project backlog (expansion projects planned up until 2029) and the expected surge in power demand, which will benefit its gas infrastructure and renewable energy franchises. Ebel asserts that Enbridge can grow by around 5% annually over the long term while preserving its financial discipline and continuing to distribute a substantial portion of its cash flows to shareholders in the form of growing dividends.
Enbage's CEO, Greg Ebel, stated during the earnings call that one of the factors contributing to the company's Dividend Aristocrat status and its 29-year streak of dividend growth is its highly contracted cash flows with minimal volatility, which allow for predictable dividend payments and increases. Additionally, Enbage's strong financial profile, with investment-grade credit and a modest debt-to-equity ratio, enables it to pay substantial dividends while also having billions of dollars in annual investment capacity.
Given Enbage's current dividend yield surpassing 6%, investors can generate significantly more income by investing in Enbage compared to alternatives like government bonds or index funds. For instance, $1,000 invested in Enbage's stock would generate about $60 in annual dividend income, contrasting with $30-$40 in interest income from bonds and $10-$30 in dividend income from an index fund.
