Enbridge’s (NYSE: ENB) impressive 6.4% dividend yield is expected to be the primary source of returns for investors over time. This is quite typical for ultra-high-yield stocks. Furthermore, with a projected moderate increase in dividends, the purchasing power of this income stream is likely to outpace inflation.
For those looking to generate passive income and who have $2,000 (or more) to invest, here’s why Enbridge should be on your investment radar today.
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Enbridge’s Strong Dividend History
Enbridge recently announced a 3% dividend increase for 2025, marking the third consecutive decade of annual raises (in Canadian dollars). Clearly, this is a dependable dividend stock.
The notable 6.4% dividend yield reflects the nature of its sector—the midstream segment of the energy market. Companies in this category are often recognized for providing substantial income to their shareholders.
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Importantly, Enbridge operates differently from many competitors. Approximately 50% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) come from oil pipelines, with another 25% sourced from natural gas pipelines. This diversified approach solidifies Enbridge’s position as a leading midstream company in North America. The remaining 25% of EBITDA includes around 22% from natural gas utilities and about 3% from renewable energy investments.
Enbridge’s business model revolves around fee-driven, contract-based, or government-regulated operations, all of which provide steady cash flows to support its dividend payments. Additionally, the utility and clean energy segments offer diversification and emphasize the company’s commitment to meeting global energy needs effectively.
A Steady and Strategic Approach
Essentially, Enbridge is channeling profits from its fossil fuel ventures (oil) to invest in cleaner alternatives, such as natural gas and renewable energy. Recently, the company acquired three natural gas utilities from Dominion Energy (NYSE: D), further tilting its energy profile towards natural gas, a cleaner option compared to coal and oil.
Such significant acquisitions are not everyday occurrences. Instead, Enbridge aims for sustainable growth, projecting an increase in distributable cash flow of about 3% to 5% annually in the foreseeable future. While integrating these utilities may lead to slower growth initially, the anticipated capital investments should eventually enhance cash flow growth.
The management team has $27 billion earmarked for future capital projects, extending through at least 2029. They believe they can achieve up to $9 billion in annual investments. Given its market cap of $90 billion, Enbridge requires sizable investments to influence both revenue and profit, yet a strong investment strategy should enable it to meet its dividend growth expectations.
Adding Up Returns: 10% Potential
Typically, investors anticipate annual returns of around 10% from the stock market. Enbridge’s 6.4% yield gets you close to that figure. With an expected dividend growth of about 4% annually, matched by potential capital appreciation, the combined return aligns with the sought-after 10%. This combination is backed by a dependable dividend stock with a clear business strategy and reliable cash flows, making it an attractive option for dividend investors, whether investing $2,000 or $200,000.
Is Now the Right Time to Invest $1,000 in Enbridge?
Before deciding to purchase Enbridge shares, keep this in mind:
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Reuben Gregg Brewer holds positions in Dominion Energy and Enbridge. The Motley Fool has positions in and recommends Enbridge and Dominion Energy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
