At about C$56, Enbridge Inc. (TSX:ENB)(NYSE:ENB) offers a yield of nearly 4.2%. Since it closed the merger with Spectra Energy on Monday, management intends to raise its dividend some more after the close. (Enbridge already hiked its dividend by 10% in Q1.)
Combined with the Q1 increase, the total 2017 dividend increase is anticipated to be 15%. This implies an annual payout of C$2.438 per share, or a forward yield of almost 4.4%. That’s an attractive yield compared to Enbridge’s historical yield range.
Future dividend growth
Enbridge aims to grow its dividend by 10-12% from 2017 to 2024 while maintaining a payout of 50-60% of available cash flow from operations (“ACFFO”). In 2016, Enbridge had an ACFFO payout ratio of about 52%, which accounted for preferred-share dividends.
Assuming a 10% dividend growth rate, buyers today can expect a yield on cost (“YOC”) of about 5.7% by 2020 and a YOC of approximately 8.3% by 2024.
Enbridge’s dividend-growth prospect is similar to what it has delivered in the last 20 years, in which it increased its dividend at a CAGR of 10.6%.
The combined company
After the merger with Spectra Energy, Enbridge has become the largest energy infrastructure company in North America with an enterprise value of about C$165 billion. The combined company has a larger scale and increased diversity in managerial experience and geographical reach. As well, Enbridge is expected to increase its financial flexibility. These will all help propel the company to the next level.
What about total returns?
At about C$56 per share, Enbridge trades at a reasonable multiple of 14.2. Buyers today can expect conservative long-term double-digit annualized returns of 12-14%.
This standalone article is mainly an excerpt from my Seeking Alpha article. Unfortunately, the number of words I can include is limited. For the full article that can be accessed for free, visit: Is Enbridge An Attractive Buy Today?
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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