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The Pipeline to Riches: Emulate Warren Buffett’s Energy Strategy with this Midstream Gem

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Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) might ring a bell for its insurance focus, with its portfolio of stocks often hogging the limelight. Yet, delve deeper, and you’ll uncover a vast conglomerate diversely spread across sectors. One area where CEO Warren Buffett has placed substantial bets is energy, particularly in pipelines. Enbridge (NYSE: ENB) offers you a ticket to sail this same wave while enjoying a juicy 7.5% dividend yield.

The Breadth of Berkshire’s Holdings

While insurance forms a core chunk of Warren Buffett’s empire, Berkshire Hathaway extends far beyond. Its ownership of various individual stocks, though highly publicized, primarily serves the insurance arm by channeling premiums into equities. Additionally, the conglomerate has acquired entire businesses unrelated to insurance, including a furniture retailer, a paint producer, and a rail network. Noteworthy among its holdings is a substantial presence in the energy sector, with investments in multiple pipeline operators. In total, Berkshire Hathaway commands roughly 21,000 miles of energy pipelines spread across three distinct businesses.

Warren Buffett.

Image source: The Motley Fool.

Peering through the lens of dividend investment, you can emulate Buffett’s playbook by adding Enbridge to your holdings. While the 7.5% yield stands out as the headline attraction, there’s more to this story than meets the eye.

Enbridge: Navigating Successes

From a quantitative perspective, Enbridge‘s 7.5% dividend yield rests on a track record of 29 consecutive years of dividend hikes. This streak is underpinned by a balance sheet sporting an investment-grade rating and an EBITDA payout ratio hovering around 65%. Positioned squarely within the company’s target payout band, this ratio bolsters the sustainability of the yield.

Delving into operations, Enbridge reigns as one of North America’s largest pipeline operators. By the numbers, this Canadian behemoth lays claim to handling roughly 30% of North America’s crude oil production and ferrying nearly 20% of U.S. natural gas consumption. Its pipeline network spans from Canada’s oil sands to the U.S. Gulf Coast, a pivotal global export hub.

Generously endowed with fees for pipeline usage, Enbridge enjoys a steady influx of cash flows. This stability echoes Buffett’s affinity for pipelines, where the greenbacks fuel Berkshire Hathaway’s investment thesis. Opting for Enbridge enables you to harness the dividend income for a variety of needs, whether funding retirement expenses, reinvesting in Enbridge, or bankrolling other investments in your portfolio.

Unveiling Enbridge’s Hidden Gems

Interestingly, within the capacious depository of businesses housed within Berkshire Hathaway, deep exposure exists in two other energy sectors: utilities and, somewhat tangentially, clean energy (where utilities are venturing). While pipelines constitute about 85% of Enbridge‘s operations, the residual segment embraces a natural gas utility (with plans to integrate three more by 2024) and a clean energy unit (primarily embracing offshore wind farms in Europe).

Avoid labeling Enbridge as a Berkshire doppelgänger. However, notable parallels emerge between the pipeline champ and Berkshire’s energy stakes. The pivotal distinction lies in the hefty dividend Enbridge dispenses, affording you the liberty to wield this cash flow at your discretion.

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Reuben Gregg Brewer has positions in Enbridge. The Motley Fool holds positions in and suggests Berkshire Hathaway and Enbridge. The Motley Fool recommends Occidental Petroleum. The Motley Fool adheres to a strict disclosure policy.

The opinions articulated herein belong to the author and do not necessarily mirror those of Nasdaq, Inc.

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