Enbridge, the Canadian pipeline company, continues to be a standout performer for income-seeking investors as it recently declared its 29th consecutive annual dividend increase, solidifying its reputation for delivering an ultra-high-yield dividend.
The latest ultra-high-yield dividend raise, amounting to just over 3%, brings the yield to an impressive 7.7%
Enbridge’s appeal to investors lies in its unwavering dedication to generating value through a consistently increasing free cash flow. The company’s strategic emphasis on acquiring assets with utility-like qualities has solidified its reputation as a dependable market player, ensuring that 80% of its earnings remain insulated against inflation. This safeguard guarantees that Enbridge’s dividends will effectively keep pace with the escalating cost of living. The company’s assets, primarily situated in the tightly regulated sector, provide a reliable and inflation-resistant income stream.
Recent acquisitions, such as three properties from Dominion, underscore Enbridge’s utility-centric approach, laying the groundwork for sustained growth in earnings and cash flow across its four major segments in 2024. Envisioning ongoing expansion, the company anticipates growth driven by increased pipeline utilization, recent acquisitions in the gas transmission sector, and strategic forays into renewables. Enbridge’s management foresees a consistent addition of approximately 3% per year to its distributable cash flow (DCF) for the midterm, underpinned by a persistent focus on utility-like assets.
Enbridge remains well-positioned to absorb higher interest costs, given its robust portfolio of inflation-protected assets
The ultra-high-yield dividend payout, currently aligning with management’s goal of 60% to 70% of DCF, is expected to witness steady growth, translating into regular dividend increases for shareholders.
Looking ahead, Enbridge management envisions EBITDA growth of around 5% annually post-2025, supporting low to mid-single-digit dividend increases each year. The stock, currently trading at an enterprise value (EV) of just 11 times the midpoint of management’s 2024 EBITDA guidance, presents a compelling investment opportunity, with substantial upside potential based on historical EV/EBITDA multiples.
For income investors seeking a combination of a strong and steadily increasing ultra-high-yield dividend, Enbridge emerges as an attractive addition to a diversified dividend stock portfolio. Despite not making it to the Motley Fool Stock Advisor’s current top 10 stock picks, Enbridge’s solid fundamentals and promising outlook make it a noteworthy candidate for income-focused investors in the market.
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