Investors seeking a reliable and growing income stream should take notice of Enbridge (NYSE: ENB), a Canadian pipeline company that recently announced its 29th consecutive annual dividend increase, marking it as an ultra-high-yield dividend stock. With a dividend increase of just over 3%, the current yield stands at approximately 7.7%, offering an attractive income opportunity. Enbridge’s robust financials and strategic moves position it for sustained dividend growth in the years ahead.
Key Strengths of Enbridge:
- Inflation-Protected Earnings:
- Approximately 80% of Enbridge’s earnings are shielded against inflation, ensuring that annual dividend increases can easily keep pace with the cost of living.
- The majority of the company’s assets fall under high regulation, providing predictable inflation-protected rate increases. Recent acquisitions, including three properties from Dominion, further enhance Enbridge’s “utility-like” asset portfolio.
- Growth Drivers in 2024:
- Management anticipates steady improvements in earnings and cash flow in 2024 across all four major segments, driven by rate increases, higher pipeline utilization, and recent acquisitions in its gas transmission and renewables businesses.
- Refinancing about $7 billion of debt in the coming year may result in higher interest expenses, but Enbridge’s inflation-protected assets are expected to absorb the impact effectively.
- Steady Dividend Growth:
- Enbridge’s dividend payout aligns with management’s target of 60% to 70% of distributable cash flow (DCF). The company’s focus on utility-like assets positions DCF for steady growth, supporting ongoing annual dividend increases.
- Midterm expectations include adding around 3% per year to DCF, translating into low to mid-single-digit percentage increases in dividends annually.
- Valuation and Bargain Opportunity:
- Enbridge’s stock is considered a bargain, with an enterprise value (EV) of just 11 times the midpoint of management’s 2024 EBITDA guidance.
- Historical trading patterns suggest potential upside to the stock price, as it typically trades at an EV/EBITDA multiple of around 14.
Investment Considerations:
- Dividend Appeal: Enbridge’s 7.7% yield, coupled with its track record of consistent dividend increases, positions it as an appealing choice for income investors.
- Value Potential: Beyond its income-generating capabilities, Enbridge’s stock presents a value investment opportunity, offering potential capital appreciation in addition to steady dividends.
