Enbridge(NYSE: ENB) has an elite growth track record. The Canadian energy-infrastructure behemoth has increased its dividend for 28 straight years. That's impressive, given all the headwinds hitting the energy sector over the years.
The company has a lot of fuel to continue growing its payout in the future. It's continually adding to its fuel supply by securing new growth-focused investments. Enbridge recently unveiled its latest deal, which should give it more fuel to sustain and grow its 6.7%-yielding dividend.
A win-win deal
Enbridge has agreed to acquire Aitken Creek Storage from a subsidiary of Fortis(NYSE: FTS) for 400 million Canadian dollars ($295 million). Enbridge is acquiring Fortis' 93.8% interest in the Aitken Creek Natural Gas Storage Facility in British Columbia and a 100% interest in the Aitken Creek North Gas Storage facility. Aitken Creek is the only underground natural gas storage facility in British Columbia. It has 77 billion cubic feet (Bcf) of storage.
It's a highly strategic facility. Aitken Creek serves the resource-rich Montney production region in Western Canada. The storage facility is the only one that connects all three major, long-haul natural gas transportation pipelines in Western Canada, including Enbridge's Westcoast Pipeline and Alliance Pipeline.
Because of that, it will enhance Enbridge's operations in the region. It will also play a vital role in supporting Canada's liquefied natural gas (LNG) export facilities. Supporting LNG is a key aspect of Enbridge's growth strategy. The deal should supply Enbridge with incremental income while enhancing its ability to expand its operations in Western Canada, helping support its plan to continue growing the dividend.
Meanwhile, the deal is important for Fortis. It will allow Fortis to recycle capital by strengthening its balance sheet and giving it the additional financial flexibility to fund its large-scale expansion program. Those investments support Fortis' plan to grow its 3.8%-yielding dividend by 4% to 6% annually through 2027.
Increasingly visible future growth
Aitken Creek adds to Enbridge's success in securing new investments this year to drive its expansion strategy. At its investor day in early March, the company noted that it had already secured CA$3.3 billion ($2.4 billion) of new accretive investments this year. They included:
- Tres Palacios: Enbridge agreed to acquire a 35 Bcf natural gas storage facility in the U.S. Gulf Coast from Crestwood Equity and Brookfield Infrastructure for $335 million. The deal will advance Enbridge's U.S. Gulf Coast LNG export strategy while advancing the capital-recycling strategies of Brookfield and Crestwood.
- Divert: Enbridge is investing $80 million into a leading renewable natural gas infrastructure company to support its expansion.
- Enbridge also secured CA$2.4 billion ($1.8 billion) of new gas-transmission modernization and utility-capital projects.
These new investments add to Enbridge's already extensive backlog of capital projects. The company has CA$17 billion ($12.6 billion) of organic expansion projects under construction that should fuel growth for the next several years. Meanwhile, it has a growinglist of potential projects under development.
It has ample capacity to finance its growth. Enbridge has a reasonable dividend-payout ratio of 60% to 70% of its distributable cash flow. That allows it to retain billions of dollars annually to fund expansion. The company also has a solid leverage ratio that's currently toward the low end of its guidance range, giving it additional funding flexibility.
Enbridge estimates its growth-related investments will expand its distributable cash flow per share at around a 5% compound annual rate in the coming years. That should support dividend growth up to that level.
An excellent passive income stock
Enbridge has an elite track record of increasing its dividend. That upward trend in its payout should continue in the future. Given its generous yield, Enbridge is ideal for investors seeking passive income.
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Matthew DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, Crestwood Equity Partners, and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners and Fortis. The Motley Fool has a disclosure policy.
