Enbridge
Enbridge (TSX:ENB) is trading near $66 per share at the time of writing, compared to $70 at the end of the third quarter (Q3) last year. The stock has risen in recent days as bargain hunters moved in after the share price fell below $63, pushing the dividend yield above 6%.
Enbridge is best known for its oil and natural gas transportation pipelines. The company transports about 30% of the oil produced in Canada and the United States, and about 20% of the natural gas used by American homes and businesses.
Political and public opposition to the construction of new major oil and gas pipelines has forced Enbridge to change its growth strategy in recent years. The company expanded into its export business with the purchase of an oil export terminal in Texas. On the natural gas side, Enbridge is a partner in the Woodfibre liquefied natural gas (LNG) export terminal being built in British Columbia.
Utilities are now also a larger part of the revenue mix. Enbridge has spent $14 billion to buy three natural gas companies in the United States by 2024. The deal made Enbridge the largest natural gas utility operator in North America. These assets, combined with the core natural gas transmission network, position Enbridge to benefit from expected increases in natural gas demand as new gas-fired power generation facilities are built to supply power to AI data centers.
Enbridge also expanded its renewable energy division with the acquisition of a U.S. solar and wind developer. Technology companies prefer to obtain some of the electricity in their data centers from renewable sources. This leads to the construction of new solar and wind projects in areas where new data centers are being built.
Grow
The broadening of the asset base has led to diversified revenue streams while providing opportunities for growth projects. Enbridge is currently working on a $35 billion secured capital program. Management expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to increase 5% annually from 2027 as the new assets are completed and put into service. This should support continued dividend increases. Enbridge has continued to increase its distribution over the past 31 years.
In Canada, the desire to reduce dependence on the United States for energy sales could lead to new oil and natural gas pipelines being built to transport production offshore for shipment to international buyers. If new capacity gets the green light, Enbridge could potentially be a partner in the projects given its expertise in the sector.
Additional acquisitions are also possible as the industry consolidates. Enbridge has the size and balance sheet strength to make big deals.
Risks
Increased oil production from Venezuela could eventually replace some of the supplies currently flowing through Enbridge’s network from Canada to refineries on the U.S. Gulf Coast. Investors will want to keep an eye on updates from Enbridge on the situation in the coming quarters.
The bottom line
Short-term volatility is expected, but Enbridge pays an attractive dividend that should continue to grow. If you have some money to put to work in a portfolio focused on dividend income, this stock deserves to be on your radar today.
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