Enbridge(NYSE: ENB) has been an exceptional investment over the decades. The Canadian pipeline and utility operator has delivered more than an 11% compound annual total return over the past 20 years. That has outpaced the S&P 500 and its nearly 10% annualized total return, and its peers in the utilities and midstream sectors, with about 8% average annual total returns.
The energy infrastructure company could produce even higher total returns in the coming years. One factor fueling that view is its ability to capture a “once-in-a-generation” acquisition opportunity that it will close in phases this year. That deal will enhance its operations and growth profile, giving it more fuel to increase its 7.5%-yielding dividend.
Snaring a once-in-a-generation opportunity
Last September, Enbridge agreed to buy three natural gas utilities from Dominion for $14 billion. The transaction will create North America’s largest natural gas utility platform with 7 million customers. It’s paying a very reasonable price for the utilities at about 1.3 times their enterprise value-to-rate base and 16.5 times price-to-earnings.
“Adding natural gas utilities of this scale and quality, at a historically attractive multiple, is a once-in-a-generation opportunity,” stated CEO Greg Ebel in the press release unveiling the transaction. He further noted that Enbridge expects the deal to be accretive to its distributable cash flow per share in the first year of full ownership, which should increase over time, powered by their strong growth profiles.
Enbridge recently closed the purchase of The East Ohio Gas Company, the first of its three gas utility acquisitions from Dominion. “The addition of a strong Ohio-based gas utility company is a great strategic fit for Enbridge. It further diversifies our business and enhances the stable cash flow profile of our assets,” stated Michele Harradence, the president of gas distribution and storage at Enbridge. Harradence further noted: “Natural gas utilities have long useful lives and are ‘must-have’ infrastructure for providing safe, reliable, and affordable energy. This gas utility will help blend and extend our cash flow growth outlook through the end of the decade by adding a steady, regulated investment that supports our long-term dividend profile.”
The fuel to grow shareholder value
Enbridge expects to close the other two gas utility acquisitions from Dominion later this year. Once it does, the company will get 22% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from the very stable gas utility sector. That will further diversify its business mix while reducing the earnings contribution of its liquids pipelines segment to 50% of the total, with the rest coming from gas transmission (25%) and renewable power (3%).
The shift toward lower carbon energy will pay dividends over the long term. It should provide Enbridge with additional growth opportunities.
That has already been the case this year. The company recently formed a natural gas pipeline and storage joint venture connecting the Permian Basin to the U.S. Gulf Coast region. That deal will further diversify its cash flow and provide a near-term boost with future growth upside.
These investments have helped enhance Enbridge’s long-term growth visibility. The company expects to grow its adjusted EBITDA by 7% to 9% annually through 2026, with its distributable cash flow rising by around a 3%-per-share pace, slowed in the near term by tax changes and a higher share count to pay for the Dominion transactions. Meanwhile, fading headwinds should help drive accelerated cash flow per share growth of 5% annually after 2026, with adjusted EBITDA likely to rise at a similar pace.
Add Enbridge’s already high 7.5% dividend yield to its growing cash flow per share of 3% to 5% annually over the long term, and the company should produce total annual returns in the 10%-12% range. That’s a very strong return from such a low-risk dividend stock.
An incredible investment opportunity
Enbridge is capitalizing on a once-in-a-generation opportunity to acquire three high-quality gas utilities. Those deals will significantly enhance the sustainability of its cash flows and its growth profile. Add in its other growth drivers, and Enbridge should have the fuel to produce strong total returns over the long term. That makes it a great stock to buy and hold for the long haul this month, especially for those seeking an attractive and growing income stream.
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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
