Key Points
Enbridge is a large North American midstream company.
Enbridge also operates regulated natural gas utilities and clean energy assets.
Enbridge is not your typical high-yield midstream investment.
Enbridge (NYSE: ENB) is a simple business on one hand, and a complex one on the other. But the big story here for dividend investors is the reliable 5.3% dividend yield. That yield is backed by a dividend that has been increased annually in Canadian dollars for 31 years. That history, along with the company's big-picture goal, is why I just keep reinvesting the dividend to buy more shares. Here's what you need to know.
What does Enbridge do to support its 5.3% yield?
Enbridge is generally classified as a pipeline company, which is completely reasonable. Oil and natural gas pipelines account for more of its revenues than any other business line. These midstream operations are largely fee-based, so the volume of energy moving through the company's system is more important than commodity prices. This allows Enbridge to produce reliable cash flows in an industry known for volatility.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
I'm a fairly conservative dividend investor, so this is a win for me. But it is only half of the story. Enbridge's real goal isn't to run pipelines; it is to provide the world with the energy it needs. This is why it also operates several regulated natural gas utilities and has a small, but growing, portfolio of renewable power assets. The company is shifting its business in line with the world's shift toward cleaner energy options. From a long-term perspective, that makes me far more comfortable continuing to buy more of the stock.
However, a key factor here is that regulated natural gas utilities generate reliable cash flows. And the company's clean energy assets are backed by long-term contracts, so they produce reliable cash flows, as well. Enbridge isn't taking wild risks as it shifts its business; it is attempting to recreate the reliable cash flows its pipelines generate in other areas of the energy sector. That's exactly the type of thing that dividend lovers like me are looking for.
I have no plan to stop buying until I need the income
When I step back and look at Enbridge, it is the type of high-yield energy stock that I can own for the long term without losing any sleep along the way. Oil prices will spike and plunge, but I can ignore those moves and focus instead on the reliable dividends I'm collecting. Those dividend checks increase with each new share I buy through dividend reinvestment and with each dividend increase. Indeed, when I finally stop working, I'm expecting my dividend check to be materially larger than it is today.
Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.