If these uncertainties cause concern, it may be wise to strengthen your portfolio with high-quality companies that are less sensitive to economic fluctuations and generate stable, predictable cash flows. Against this background, let’s take a closer look Enbridge (TSX:ENB), which operates a largely contracted midstream energy business. By examining its historical performance, dividend growth track record, valuation and long-term growth prospects, we can assess whether the stock offers an attractive buying opportunity below $71.
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Enbridge’s fourth quarter business outlook and performance
Enbridge operates a diversified energy infrastructure business with an extensive pipeline network that transports approximately 30% of the crude oil produced in North America and approximately 20% of the natural gas used in the United States. It also operates three U.S. natural gas utilities and 41 electric generating facilities with a combined capacity of 7.2 gigawatts.
Approximately 98% of Enbridge’s adjusted EBITDA comes from long-term cost-of-service contracts, with nearly 80% of those agreements indexed to inflation. This highly contracted and inflation-protected business model ensures that profits and cash flows are relatively resilient to economic cycles and commodity price fluctuations. As a result, the company has met its financial expectations for 20 years in a row and increased its dividend 31 years in a row. It currently pays a quarterly dividend of $0.97 per share, which yields about 5.49% at current prices.
In the most recently reported fourth quarter, Enbridge generated adjusted EBITDA of $5.21 billion, up 1.6% year over year. Over the past 12 months, the company has commissioned $5 billion worth of projects. The contributions of these new assets, together with favorable tariff revisions and lower maintenance costs, supported EBITDA growth. Meanwhile, adjusted earnings per share (EPS) rose 17.3% to $0.88.
With these achievements in mind, let’s now examine Enbridge’s growth prospects.
Enbridge’s growth prospects
Enbridge has identified approximately $50 billion in growth opportunities across its four business segments over the remainder of this decade. The company plans to invest approximately $10 billion annually to advance these projects, which could improve financial performance and cash flow generation in the coming years.
Management projects that adjusted EBITDA, adjusted earnings per share, and distributable cash flow per share will grow at mid-single digits for the rest of the decade. Backed by visible cash flows and a substantial capital program, Enbridge also expects to return between $40 billion and $45 billion to shareholders over the next five years through dividends and share repurchases.
Investor takeaway
Enbridge has historically delivered solid value to shareholders. Over the past two decades, the company has generated an average annual total shareholder return of 12.1%, outperforming the broader market.
Although the stock has delivered a healthy total return of 22.5% over the past twelve months, it has lagged the broader equity markets over this period. From a valuation perspective, the shares appear reasonably priced, with forward twelve-month price-to-sales and price-to-earnings ratios of 2.5 and 23.6 respectively.
Given its highly contracted business model, visible growth pipeline, reasonable valuation and attractive dividend yield, Enbridge appears well-positioned and could be an attractive buy at current levels.
#Buy #Enbridge