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Enbridge: Low Risk with High Yield
05/22/2019 5:00 am EST
By total enterprise value (market cap plus debt of more than $150 billion) Enbridge is the largest energy infrastructure companies in North America. Company headquarters are in Calgary, Canada.
ENB shares trade on both the Toronto Stock Exchange and the New York Stock Exchange. Financial results are reported in Canadian dollars, so an exchange rate much be factored in for investors owning ENB shares trading in the U.S.
Enbridge owns a continent spanning network of liquids and natural gas pipelines. The company is a primary transporter of crude oil produced in Canada and delivered to U.S. based refineries. The company divides its operations into three core businesses:
* World’s longest and most sophisticated crude oil and liquids transportation system.
* Delivers over 3Mbpd on Mainline and Express pipelines.
* Full path connection from Canadian oil sands to US Gulf Coast.
* Connected to 9MMbpd of downstream refining capacity.
* Connects key North American supply basins to largest demand centers.
* More than 192,000 miles of natural gas and NGL pipelines across N.A. and the Gulf of Mexico.
* No direct commodity and minimal volume exposure.
* Largest natural gas utility in North American by send-out volumes.
* More than 3.7 million customers and growing.
* Incentive based regulatory model
The result of the combination is a low risk business model with 98% of revenue coming from regulated, take or pay, or fixed fee contracts. Contracts are long term and have built in cost of service or inflation adjustments.
The biggest challenge for Enbridge is environmental group legal challenges to new pipelines or even the replacement or upgrade of existing pipelines. These legal maneuvers slow down the approval and construction of projects, resulting in higher costs.
To date, Enbridge has been able to stay close to its growth project plans, but environmental group challenges are the biggest threat to future growth. The company’s capital investment program for 2019-2020 totals $16 billion.
Enbridge is a dividend growth stock with an attractive current yield of 5.7%. Dividend growth has averaged 11% for the last five years.
The current annual dividend rate is $2.95 Canadian per share. The company has provided 2019 distributable cash flow (DCF) guidance of $4.30 to $4.60 Canadian per share. The dividend is well covered.
The current dividend rate equates to $2.18 per share U.S., or $0.555 U.S. per share quarterly.
Management’s dividend growth outlook is for 10% annual growth through 2020 and then 5% to 7% DCF per share growth after 2020.
Enbridge is an attractive, low-risk, yield plus dividend growth investment prospect. The primary drawback is the possibility of exchange rate fluctuation that affect the returns to U.S. investors.
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