Can Enbridge Support Its Dividend?
Enbridge (NYSE: ENB) is offering a sizable 6.7% dividend yield today. The dividend has been increased annually for 27 consecutive years, putting the company in the Dividend Aristocrat space. But that record doesn't mean you should just accept that the Canadian midstream giant can keep up this impressive streak. It can, but here's why you can be confident in that fact.
The core of Enbridge's business is its oil and natural gas pipelines, which make up 58% and 26% of earnings before interest, taxes, depreciation, and amortization (EBITDA), respectively. These midstream operations are fee based, so demand for oil and natural gas is more important than commodity prices, which tend to be volatile. In addition to these businesses, Enbridge also operates a natural gas utility business (12% of EBITDA) and a growing clean energy portfolio (4%). The utility business is regulated and the clean energy portfolio is driven by long-term contracts. Basically, Enbridge's business is extremely consistent and extremely boring. But that's a good thing when it comes to supporting a dividend, since energy-price volatility isn't a big worry here.
Now, that tiny 4% of EBITDA clean-energy portfolio is perhaps the most interesting aspect of the company today. It shows Enbridge is working to adjust along with the world around it, which will help ensure it can keep paying its dividend over the long haul. But this division isn't likely to stay so small for long, given that roughly a third of the company's capital-spending plan is earmarked for this division right now. Step back and think about that: 4% of the business is set to get one third of the capital spending. Enbridge is clearly looking to grow quickly in this space to keep pace with the world's clean energy zeitgeist.
Source Fool.com
