Enbridge (ENB 0.26%) has one of the best records of paying dividends in the energy sector. The Canadian pipeline and utility company has paid dividends to its shareholders for nearly seven decades. Meanwhile, it has raised its payout for almost 30 straight years.
It should have the power to continue increasing its payout (which yields more than 7.5% these days) for several more years. One catalyst driving that view is its ability to find innovative ways to capture additional expansion opportunities.
NYSE: ENB
Key Data Points
A win-win partnership
Enbridge and Six Nations Energy Development (a newly created consortium of Indigenous groups in Canada) recently revealed plans to advance a new wind energy project in Saskatchewan. The Seven Stars Energy project would produce 200 megawatts (MW) of emissions-free power. That's enough to support the energy needs of more than 100,000 homes in the Canadian province.
Enbridge would build and operate the project, which could be operational by 2027. The company is working to secure a long-term power purchase agreement with SaskPower to support a final investment decision, which could come next year. Six Nations would have the opportunity to acquire at least a 30% interest in the project, supported by up to 100 million Canadian dollars ($73 million) in loan guarantees from the Saskatchewan Indigenous Investment Finance Corp. That investment would provide a stable revenue source to the Indigenous groups from their share in the project's earnings.
This project is Enbridge's first Indigenous partnership focused on wind energy and with groups in Saskatchewan. It provides the company with a unique opportunity to grow its renewable energy portfolio and earnings while providing more clean energy to Canada.
Potentially adding more power to its robust growth engine
The Seven Stars Energy project would add to the company's long and growing list of organic expansion projects. Enbridge ended the first quarter with a secured capital program totaling CA$25 billion ($18.3 billion) in projects. They span each of its four core franchises (liquids pipelines, gas transmission, gas distribution and storage, and renewables).
The company expects those projects to come online through 2028. Adding Seven Stars Energy would enhance its long-term visibility and its growth from renewable energy, which currently features three offshore wind farm developments in Europe and the second phase of its Fox Squirrel Solar project in the U.S.
Enbridge expects its massive capital project backlog will help power 3% annual earnings growth through 2028. The company also expects optimizations and cost savings to add another 1% to 2% to its bottom line each year. In addition, it has the financial flexibility to make accretive acquisitions as opportunities arise.
The company has enhanced its growth profile over the past year due partly to its ability to partner with other companies. For example, the company entered a joint venture (JV) with private equity funds and another energy infrastructure company to develop, own, and operate natural gas pipeline and storage assets connecting the Permian Basin to the Gulf Coast region earlier this year. That partnership will allow Enbridge to acquire operating assets in exchange for a stake in a pipeline development project. This JV will immediately increase its cash flow while helping offset some development costs.
Meanwhile, Enbridge expanded its partnership with EDF Renewables last year by investing in Fox Squirrel Solar. That added a new growth project to its backlog. It benefited from its existing partnership with EDF Renewables to develop offshore wind farms in France.
Enbridge's ability to work with strategic partners provides it with new expansion opportunities and helps offset some of the funding commitment. That enables it to invest in more projects, enhancing its growth and diversification.
Plenty of power to continue pushing its payout higher
Enbridge has done a magnificent job rewarding its shareholders through a steadily rising dividend. The energy infrastructure giant generates stable cash flow, which it uses to pay dividends and invest in expansion projects. It routinely enhances its growth profile through strategic partnerships, which provide it with new expansion opportunities and help fund part of the cost of those projects. That strategy should continue paying dividends in the future by supplying Enbridge with more growth opportunities, which should give it more power to continue increasing its high-yielding payout.
