This 7% dividend stock should be your first choice for income and growth

Enbridge (NYSE:ENB) is the largest operator of energy infrastructure in North America. The Canadian pipeline and utility company transports 30% of the oil produced in North America and 20% of the gas consumed in the U.S. and operates the largest gas utility on the continent. Most importantly, it is a leading global producer of renewable energy.

These assets help Enbridge pay a well-supported dividend, which currently yields about 7%. Meanwhile, Enbridge has a strong growth pipeline that, along with the dividend, should fuel it to generate low-double-digit annual profits. total returns in the coming years. Those attributes make Enbridge a “first-choice investment,” according to CEO Greg Ebel in a second-quarter earnings release.

Built like a rock

Enbridge recently reported solid second-quarter results. The company’s adjusted results earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 8% (setting a new record for the period) and cash flow per share increased by 3%.

But even more important was the significant progress the company made on its strategic priorities during the quarter. Enbridge closed on its second of three natural gas investments utility acquisitions during this period, buying Questar from Control for $4.3 billion. The company also filed a settlement with regulators, creating a clear path to closing its third and final acquisition of Dominion Utility in the third quarter (PSNC) and finalized all financing needed for those transactions. These utility acquisitions will further enhance cash flow stability and diversification.

Even after financing acquisitions, Enbridge ended the second quarter with growth of 4.7 leverage ratiowithin its target range of 4.5 to 5.0 times. The company’s rating agencies put their stamps of approval on its balance sheet during the quarter, reinforcing “our long-held view that our balance sheet is strong,” Ebel said. Meanwhile, leverage will gradually decline as the company receives the full benefits of its utility acquisitions, giving it even more financial flexibility.

Combined with a conservative dividend payout ratio (60%-70%), Enbridge has billions of dollars of annual investment capacity. It can self-finance the equity capital needed for expansion from retained cash flow after dividends, while also leveraging its large balance sheet capacity to fund balance future capital needs for growth.

These factors make Enbridge a highly profitable dividend payer extremely solid foundation. They almost not ensure that the company can maintain its unblemished dividend record. The company has paid dividends for over 69 years, increasing the payout level each year for 29 consecutive years.

Further growth ahead

Utility acquisitions to support earnings growth in 2024 and beyond Enbridge increased its full-year 2024 adjusted EBITDA guidance while maintaining its cash flow per share guidance as the impact of pre-financing from the transaction will offset the additional cash flow. They will provide more significant growth next year as the company feels the full impact of earnings and cash flow growth. In the meantime, they will provide growth in the years to come as Enbridge invests in expansion. his operations.

These utility expansions are part of the C$24 billion ($17.3 billion) of secured commercial projects that Enbridge has in its backlog. It recently added several more projects, improving its long-term growth prospects. The new additions include:

Blackcomb Pipeline: Enbridge and its partners are building a 2.5 billion cubic feet per day pipeline that will increase gas transmission capacity in South Texas.
Grey Oak Pipeline: The company is implementing a production plan of 120,000 barrels per day expansion of this oil pipeline.
Orange grove sunny: Enbridge will invest $250 million to build 130-megawatt solar farm. AT&T agreed to buy 100% of the energy it will produce.

Enbridge has ample financial capacity to fund its secured capital project portfolio with a margin. This allows it to continue to approve new projects and make additional acquisitions as opportunities arise. The company estimates that these investments will help increase cash flow per share by 3% to 5% annually in the coming years.

A first-class investment opportunity

Enbridge’s low-risk business model supports its dividend and expansion plan. As such, it offers a solid 7% yielding income stream and should be able to grow its cash flow by 3% to 5% annually (supporting a similar dividend growth rate). All told, Enbridge has the visibility to deliver 10% to 12% annual total returns for years to come. That’s an excellent return for such a low-risk stock, making it a prime long-term investment opportunity.

Is it worth investing $1,000 in Enbridge now?

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Matt DiLallo has a position in Enbridge. The Motley Fool has a position in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.

This 7% Dividend Stock Should Be Your First Pick for Income and Growth was originally published by The Motley Fool