enbridge (ENB -0.97%) There have been decades of unconventional investments. Canada’s pipeline and utility operators have achieved compound annual gross returns of more than 11% over the past 20 years.it exceeded S&P500 The company’s annualized total return is about 10%, compared with the average annualized total return of its utility and midstream peers of about 8%.
This energy infrastructure company has the potential to generate even higher total returns in the coming years. One factor reinforcing that view is its ability to capture “once-in-a-generation” acquisition opportunities that will be completed in stages this year. The transaction strengthens the company’s business operations and growth profile, providing further impetus for dividend growth at a dividend yield of 7.5%.
Seize the once-in-a-generation opportunity
Last September, Enbridge agreed to buy three natural gas public works from dominion For $14 billion. The transaction will create North America’s largest natural gas operating platform with 7 million customers. We pay a very reasonable rate, approximately 1.3 times the utility rate. Corporate value-Rate base and 16.5x price versus revenue.
“Adding a natural gas business of this size and quality at a historically attractive multiple is a once-in-a-generation opportunity,” CEO Greg Ebell said in a press release announcing the deal. He further noted that Enbridge expects the transaction to be accretive to distributable cash flow per share in the first year of full ownership, which should be accretive over time due to its strong growth profile. did.
Enbridge recently completed its acquisition of East Ohio Gas Company, the first of three gas acquisitions from Dominion. “The addition of a strong gas utility based in Ohio is a strategic fit for Enbridge. It further diversifies our business and strengthens the stable cash flow profile of our assets.” said Michel Haradens, Bridge’s president of gas distribution and storage. . Mr. Haradens continued, “Natural gas operations are a ‘must-have’ infrastructure for providing long-life, safe, reliable and affordable energy. “This will help consolidate and extend our cash flow growth outlook through the end of the year.” It adds stable, regulated investments that support our long-term dividend profile. ”
The driving force to increase shareholder value
Enbridge also plans to complete two other gas acquisitions from Dominion later this year. If that happens, the company will receive 22% of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from a very stable gas business sector. While this will further diversify the business mix, the liquid pipeline segment’s revenue contribution will be reduced to 50% of the total, with the remainder being gas transportation (25%) and renewable power (3%).
The transition to low-carbon energy will pay dividends in the long term. That should create further growth opportunities for Enbridge.
That’s already happening this year.company recently established a natural gas pipeline and storage joint venture It connects the Permian Basin and the Gulf Coast region of the United States. The transaction will further diversify the company’s cash flow and provide a short-term boost to future growth upside.
These investments have helped enhance Enbridge’s long-term growth prospects. The company expects adjusted EBITDA to grow 7% to 9% annually through 2026, and distributable cash flow to grow at about 3% per share, but due to changes in taxes and the number of shares payable. We expect this increase to slow down in the short term. For Dominion trading. Meanwhile, cash flow growth per share is expected to accelerate at 5% per year from 2026 onwards as headwinds weaken, and adjusted EBITDA is expected to rise at a similar pace.
Add Enbridge’s already high 7.5% dividend yield to cash flow per share that grows 3% to 5% annually over the long term, and the company should generate annual gross returns in the 10% to 12% range. That’s a very strong return from such a low-risk dividend stock.
great investment opportunity
Enbridge is capitalizing on a once-in-a-generation opportunity to acquire three premium gas companies. These transactions will significantly enhance our cash flow sustainability and growth profile. Add in other growth drivers and Enbridge should be able to drive strong total returns over the long term. That makes it a great stock to buy and hold for the long term this month, especially for those looking for an attractive and growing income stream.
Matt DiLallo has a position at Enbridge. The Motley Fool has a position in and recommends Enbridge. The Motley Fool recommends his Dominion Energy. The Motley Fool has a disclosure policy.
