Enbridge: A High-Yield Dividend Stock With Strong Growth Prospects

Enbridge (ENB 2.26%) is a major player in the energy sector, providing investors with a substantial income stream. The Canadian pipeline and utility company boasts a remarkable 6.5% dividend yield, significantly higher than the S&P 500's average yield of just 1.3%.

This impressive yield is only one aspect of what makes Enbridge an attractive investment. The company has a robust pipeline (no pun intended) of expansion projects that promise to enhance its growth over the coming years. With both growth potential and a healthy income stream, Enbridge represents a compelling long-term investment opportunity.

Expanding Its Growth Engine

Recently, Enbridge shared updates with its investors regarding its growth strategy. The company has successfully secured about $20 billion in expansion projects, thanks to the addition of $1.7 billion in new investments. These recent projects include:

• Mainline Capital Investment: A commitment of up to $1.4 billion through 2028 aimed at improving the reliability and efficiency of its Mainline oil pipeline system.
• Birch Grove: Approval of an additional $276 million to expand the T-North Pipeline, facilitating the movement of extra natural gas supplies, expected to complete by 2028.
• T15 Expansion: A $69 million investment to double the capacity of the T15 gas utility project, projected to begin commercial service by 2027 or 2028.

These projects reinforce and broaden Enbridge's long-term growth outlook. The company is currently focused on projects spanning its four core business areas: liquids pipelines, gas transmission, gas distribution and storage, and renewables, all expected to begin operations by 2029. Enbridge anticipates bringing $15.9 billion worth of projects online by 2027, with additional projects expected in 2028 and 2029.

This extensive backlog of projects gives Enbridge clear visibility regarding its growth path. The company estimates it can achieve 7% to 9% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) until 2026, followed by 5% annual growth thereafter. Additionally, it is set to deliver 3% growth in distributable cash flow per share through 2026, which may rise to 5% beyond that year. This trajectory supports annual dividend increases of up to 3% in the near term, potentially accelerating to 5% post-2026, thus continuing its track record of over three decades of annual dividend growth.

Future Growth Opportunities

Enbridge foresees numerous opportunities for continued expansion within each of its business segments. During a recent investor day, CEO Greg Ebel discussed the company's optimistic growth prospects:

"Global energy demand is on the rise and will require a diverse range of energy solutions. Enbridge's well-diversified infrastructure positions us effectively to meet this demand by providing a mix of oil, natural gas, and renewable energy across five countries, 43 states, and eight provinces. All four of our growing franchises are full of opportunity, and we are eyeing approximately CA$50 billion (about $34.5 billion) in new growth ventures through 2030."

The company identifies gas transmission as holding the greatest growth potential, estimated at $15.9 billion. It is pursuing $6.2 billion in projects aimed at enhancing gas supplies in the U.S. Gulf Coast, supporting growth in regions like the Permian and offshore, and moving that gas to meet rising industrial and export demands. Additionally, it is exploring $9.7 billion worth of opportunities to support the increasing demand for gas-fired power from utilities and data centers.

In its other segments, Enbridge is seeking expansion projects worth $6.9 billion in liquids pipelines, $6.2 billion in gas distribution and storage, and $4.8 billion focused on renewable energy. A significant portion of the growth in its liquids pipeline segment is directed toward lower-carbon initiatives, totaling $4.1 billion. This includes projects such as carbon capture and storage pipelines and infrastructure for blue ammonia production and exports. Enbridge is also working on additional expansions at its gas utilities to meet growing power demand, as well as boosting its renewable energy capacity.

By securing these and other upcoming projects, Enbridge will be well-positioned to further enhance and extend its long-term growth profile. This would enable the company to continue increasing its generous dividend payouts in the future.

High Total Return Potential

Enbridge’s combination of a high dividend yield paired with solid growth prospects positions it favorably to deliver strong total returns for investors. If the company can achieve cash flow growth in the 3% to 5% range annually, it could potentially generate total annual returns of 10% to 12%, factoring in its high-yielding and steadily increasing dividend. Such returns from a low-risk dividend stock are indeed noteworthy.

Note: This article provides a general overview and is not investment advice. Always consider consulting a financial advisor before making investment decisions.

Dividend, Growth, Investing