Image source: Getty Images
Investing in the stock market is a proven strategy for generating inflation-beating returns and building long-term wealth. While the best way for most investors to gain exposure to the stock market is to buy and hold low-cost, passively managed index funds, income-seeking investors should consider increasing exposure to blue-chip dividend stocks.
Basically, you need to identify a portfolio of fundamentally sound companies that pay you an attractive dividend yield. Since dividends are not guaranteed, these companies should generate stable cash flows throughout market cycles, a portion of which should be paid out to shareholders through dividends. One of those TSX dividend stocks is Enbridge (TSX:ENB), which offers you a high forward yield of 6.6%. Let's see why.
The Bull Case for Enbridge Stock
Enbridge is a diversified energy infrastructure giant with a growing portfolio of cash-generating assets. Its four main business segments include liquids pipelines, gas transmission and midstream, gas distribution and storage, and renewable energy.
In particular, Enbridge is well positioned to benefit from the artificial intelligence megatrend, as the growth of data centers will drive demand for natural gas and other cleaner energy sources. On the recent earnings call, Enbridge CFO Patrick Murray explained: “Across our utilities footprint, we are engaging in additional early-stage discussions with data centers that we expect will result in a future growth”.
According to Enbridge, data centers need basic low-power solutions, such as natural gas, to meet the energy needs of hyperscalers.
In the gas transmission segment. Enbridge emphasized that its assets are located within 50 miles of 45% of all natural gas power generation in North America. With a wide range of customers, this segment has secured 700 million cubic feet per day of transmission capacity to serve up to 5,000 megawatts of new gas power demand in the second quarter (Q2).
Last September, Enbridge announced plans to acquire three natural gas companies from Domain Energy for 19 billion dollars. It has already completed the acquisition of two utilities, which should drive higher future earnings and cash flow.
In the second quarter of 2024, Enbridge increased its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) by 8%, while its distributable cash flow per share stood at $1.34.
In 2024, Enbridge expects EBITDA to range between $17.7 billion and $18.3 billion, reflecting partial contributions for the year from the three U.S. gas companies. Additionally, Enbridge expects distributable cash flow per share of between $5.40 and $5.80. At the midpoint, Enbridge's payout ratio is sustainable at 65%, giving it the flexibility to target acquisitions, increase dividends, and strengthen the balance sheet by reducing long-term debt.
The company has reaffirmed its near-term financial outlook for EBITDA growth of between 7% and 9% through 2026, while earnings per share growth is forecast at 5%.
The silly takeaway
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | FULL PAYMENT | FREQUENCY |
| Enbridge | $54.57 | $183 | $0.915 | $167 | Quarterly |
Investing $10,000 in Enbridge stock will allow you to purchase 183 shares of the company. Given its annual dividend of $3.66 per share, 183 shares would mean its dividend payments over the next 12 months would total $668. If Enbridge increases its payout at a compound annual growth rate of 7%, its dividend payout will double over the next 10 years.