Enbridge (NYSE: ENB) is correctly classified in the energy sector. However, the lofty 5.4% dividend yield is backed by a reliable fee-generating midstream business located in North America. The geopolitical conflict in the Middle East isn’t a major factor for the company, even if it leads to a global recession. But there’s more to the story than just oil, which is why Enbridge could change your financial future.
Enbridge moves oil and natural gas on behalf of other energy companies. It charges fees for the use of its energy infrastructure assets, such as pipelines, so the price of what is being moved is less important than the volume being transported across its midstream system. Energy is vital to the modern world, so volume tends to be strong regardless of energy prices and stock market dynamics, and it tends to hold up fairly well during economic downturns.
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That’s the foundation on which Enbridge has built a 31-year streak of annual dividend increases (in Canadian dollars). If you are a dividend investor, Enbridge’s well-above-market yield should be of interest based on just that information. But the story is more interesting than that, because the company’s overarching goal is to provide the world with the energy it needs. This is why Enbridge has been increasing its investment in regulated natural gas utilities and clean energy.
Regulated natural gas utilities aren’t exciting assets, but they generate reliable cash flows. Just as important, they have fairly predictable capital investment needs. Regulators are generally happy to approve the requested spending and allow reasonable rate increases. Like Enbridge’s pipeline operations, its regulated natural gas utilities are slow-and-steady growers.
The relatively small investment in clean energy, meanwhile, is all supported by long-term power contracts. Once again, the focus is on reliable cash flows to support the dividend. However, the real draw for investors here isn’t the cash flow; it’s Enbridge’s purposeful effort to position itself to thrive over the long term. If you buy Enbridge, you are buying a midstream company, but one that is looking decades ahead to a future with more clean energy.
Of course, investors looking at Enbridge will find the high dividend yield and impressive dividend history attractive. But it is the business that backs the yield that is so important. Its midstream focus shields it from today’s commodity volatility, and its investments beyond the midstream give it long-term appeal. If you are a buy-and-hold dividend investor, owning Enbridge is a good way for you to help ensure that your income keeps up with whatever the future has to hold.
