Enbridge Inc. is the largest energy infrastructure company in North America, engaging in the collection, transportation, processing, and storage of oil and gas. It is Canada’s largest natural gas distributor.
Enbridge is known for its high-quality liquids and natural gas infrastructure assets. It owns an extensive network of more than 216,000 kms of natural gas and active crude pipelines across North America and the Gulf of Mexico.
The company serves 12 million bpd of refining capacity. In addition, Enbridge has 3.8 million meter connections in Ontario and Quebec catering to 12 million customers. It has interests in more than 30 renewable power facilities, including a growing presence in offshore wind in Europe. Its operating facilities have the capacity to generate about 1,750 MW.
The company also has 440 Bcf of net working storage capacity. Enbridge transports 25% of the crude oil produced in North America through the world’s longest crude oil and liquids network. It also moves 20% of the natural gas consumed in the U.S.
Enbridge operates through three reporting segments –
- Liquids Pipelines (55% of 2020 EBITDA) serves more than 12MMBPD of refining capacity
- Gas transmission and midstream (30%) serves over 170MM people in regional markets
- Gas Utilities and storage (15%) serves over 14MM people in utility franchise
- Opportunity Score: 65
- Ticker: TSE:ENB
- Sector: Energy
- Industry: Oil & Gas Midstream
- Market Cap: 68.62B
- P/E: 29.12
- Dividend Yield: 7.77%
- Payout Ratio (Earnings): 225.68%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 6/10
Revenue Growth & Market Exposure
Enbridge engages in providing integrated transport services and connectivity to key energy supply basins and demand markets. Revenues are driven by volumes transported and the corresponding tolls for transportation services.
The company typically enters into long-term contracts providing strong cash flow visibility. A majority of its revenue is insulated from volume and price risk, as revenues reflect the terms of the underlying contract for services or are charged in accordance with tolls established by the regulator.
As North America’s premier energy infrastructure company, Enbridge connects major supply basins with key consumer markets. Its core assets consist of pipeline and utility assets having highly predictable cash flows.
Enbridge is shifting its focus towards a more regulated asset mix in order to reduce risk in the future. Enbridge continues to invest in core pipeline projects across the liquids and gas transmission businesses.
The company is in a good position to capitalize on LNG growth as its gas systems follow the U.S. Gulf Coast from South Texas to Louisiana, where it can play a key role in supplying existing and new export facilities. The Liquids Mainline volume which was earlier impacted by reduced refinery demand has steadily recovered during the year. In Liquids Pipelines, Line 3 construction is underway in Minnesota and is expected to be put to service by Q4 of 2021.
The company also continued the construction and execution of its various projects in the gas transmission and renewable energy business. It successfully added 43 thousand customers to its Gas Distribution business.
It is focusing on low-cost organic expansions that boost returns by enhancing revenue while minimizing investment. The Spectra integration is now complete. The company has been investing in renewables and currently has 21 renewable projects and a growing offshore presence in Europe. Though 2020 global gas demand fell by 4% YoY due to the pandemic, natural gas will remain a critical and growing energy source. The 2020 utilization rates in the Gas Transmission, Gas Distribution, and Renewable Power businesses remained high.
Given its large scale, leading position, utility-like businesses, and growing demand for energy, the company is well placed to grow its future dividends in the high single range. Enbridge has successfully repositioned itself to a pure regulated pipeline and utility business. About 98% of earnings are from regulated businesses and more than 90% of its clients are investment-grade customers. A balanced and diversified asset portfolio, a huge customer base, and an extensive network of distribution lines form a deep competitive moat around Enbridge’s business.
Enbridge returns approximately 65% of its cash flows to shareholders annually. The company increased its dividend again by ~10% for the third year in a row. It has demonstrated resilient growth despite the business and commodity price cycles.
Enbridge is a Canadian Dividend Achiever and a Canadian Dividend Aristocrat paying dividends for 70 straight years and raising them consistently over the last 26 years. The company has maintained a double-digit dividend CAGR over the past few years increasing them at a rate of 14%+ CAGR over the last decade. Enbridge last raised its dividend payout by 9.8% and sports an attractive dividend yield of 9.5%. It expects to maintain a payout of 60-70% of DCF.
Enbridge is set to benefit from a growing demand for power and is strategically positioned to capitalize on strong energy fundamentals over the long term. Future earnings and cash flow growth of 5%-7% is expected during 2021-2023 on the back of $16 billion of secured growth capital.
The company is anticipating a 4% DCF/ share growth for FY 2021. It successfully placed $1.6B of capital projects into service and delivered strong operational performance during FY 2020 and is expecting another $3 billion by FY2021. Enbridge has also reaffirmed its 2021 DCF per share guidance range of $4.70 to $5.00 and the EBITDA range of $13.9 billion to $14.3 billion. It ended the year with over $13 billion of available liquidity, more than sufficient to meet its funding requirements through FY 2021.
Enbridge continued to simplify the structure, de-risking its business mix through non-core divestitures and deleveraging its balance sheet significantly. The company is now in self-funded growth mode. It further has ~$30B of organic growth projects in development. The company’s earnings should continue to grow driven by the strong operating performance from core assets and incremental contributions from the new capital growth projects.
Enbridge Inc. is one of the largest energy companies in North America. Its low-risk business model, large pipeline network, and strategic business platforms are key differentiators.
The company competes with the likes of TransCanada, Pembina Pipeline, Keyera Corp, Inter Pipeline, etc. Pembina Pipeline is a leading midstream and transportation service provider in North America while TransCanada Pipeline is a North American infrastructure company, supplying more than 25% of natural gas consumed daily across the continent.
Keyera is known for its integrated business, strategic locations, and large scale. A superior low-risk business model, high-quality infrastructure, and strong organic growth are Enbridge’s strong competitive advantages.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield Raw||Yield||PayoutRatio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph|
|TSE:ENB||ENB||Enbridge||Energy||Oil & Gas Midstream||0.65||42.98||68.62||29.12||29.12||1.48||0.0777||7.77||2.2568||4||3.34||0.1944||7||6||Tollbooth - Unregulated||YES||YES||YES||NO||Canada||1|
|TSE:TRP||TRP||TC Energy||Energy||Oil & Gas Midstream||0.75||53.30||39.42||11.24||11.24||4.74||0.0653||6.53||0.7342||4||3.48||0.1356||6||10||Tollbooth - Unregulated||NO||YES||YES||NO||Canada||1|
|TSE:PPL||PPL||Pembina Pipeline||Energy||Oil & Gas Midstream||0.61||32.36||17.92||20.13||20.13||1.61||0.0779||7.79||1.5652||12||2.52||0.1201||6||6||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:IPL||IPL||Inter Pipeline Ltd||Energy||Oil & Gas Midstream||0.43||17.91||7.69||21.35||21.35||0.84||0.0268||2.68||0.5714||12||0.48||0.0557||2||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
|TSE:KEY||KEY||Keyera Corp||Energy||Oil & Gas Midstream||0.46||24.67||5.45||87.67||87.67||0.28||0.0778||7.78||6.8571||12||1.92||0.1408||6||5||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:GEI||GEI||Gibson Energy Inc.||Energy||Oil & Gas Midstream||0.43||21.66||3.16||26.56||26.56||0.82||0.0646||6.46||1.7073||4||1.40||0.0646||2||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
Enbridge is repositioning itself to a pure regulated pipeline and utility business to increase earnings visibility. The company has a strong three-year free cash flow growth plan.
It is also making solid progress on low-cost in-franchise expansions. A premium natural gas transmission franchise, liquids pipeline, and natural gas utility business provide the scale and diversity to compete and grow in the future. Huge capital investments and a low-risk business model also ensure strong and consistent dividend growth.
The company expects the economic recovery to be gradual, with improving North American energy fundamentals, recovering energy prices, and increasing exports and demand.