2022, has so far been a very challenging year for the world economy as it recovers from the pandemic woes. The stock market continues its wild ride amid the economic and geopolitical instability. Even the pandemic darling and high growth tech stocks have suffered immensely this year, as traders search for alternatives that can shield them from loss in such tumulus times. One of the lifelines is the oil or energy sector.
Energy prices have been on the bull run lately with oil remaining above $100 a barrel. This has continued despite challenges rising from the sanctions on Russian oil and gas supplies amid its war on Ukraine and Covid lockdowns throttling the world’s second-largest economy, China. On the other hand, bottlenecks in the supply chain also remain in the industry due to both lacks of new investments and political and social pressures against it.
However, increased demand and supply chain disruptions due to the war have caused an uptick in economic activities, which is driving the financials of energy companies as well as their payouts. With oil prices anticipated to remain above $100/barrel, the unresolved conflict and a possible EU embargo on Russian oil could further tighten supply and spike the price. However, whether oil prices go further up or not, Enbridge Inc. (ENB) is poised for continued growth with its solid assets, increased visibility over future cash flows, and high dividend yields (well before the oil uptick). It has been consistently returning cash to shareholders irrespective of market conditions and is expected to do so in the future as well.
Year to date and the past twelve-month picture remains in the green for ENB with an uptick of 13.97% and 15.36% respectively. As of now, the stock has a value of $44.65, a share based on the after-hours data from May 20, 2022.
ENB has benefitted from the strong oil and gas industry, as the price hikes promote its bullishness with highs not seen in years. But, even when oil prices were low, it has been a relatively safe stock with stability leveraged from its long-term contracts.
Over the past 27 years, even amid the instability in the oil and gas industry with wide price fluctuations, the company has managed to raise its dividends consistently. It has averaged a compound annual dividend growth rate of 10% in the time frame. Currently, the dividend yield of the company is at 6% which is vastly above the S&P 500 average of 1.4%. Given the company’s tendency to raise payouts, it is only expected to go further up from here.
Not just the payout, but its underlying business is also very sound. ENB has a very low-risk business model with over 40 sources of cash flows. Its diversified infrastructure portfolio includes liquid pipelines, gas transmission, gas distribution, and storage, as well as renewable power. Its assets include 17,809 miles of crude oil pipelines, 76.546 miles of natural gas pipe, and 281 billion cubic feet of net gas storage capacity. It is also working on 2,172 MW of net energy production in the renewable sector.
98% of its earnings are from stable long-term cost-of0service agreements and fixed-rate contracts. On top of it, 95% of its customers have an investment-grade rating. This results in steady cash flows for ENB which it expects to grow further by 5-7% annually over the next three years.
The company also has a strong financial profile, which gives it billions of dollars in annual financial flexibility to invest in expanding operations. With a multi-billion-dollar backlog of expansion projects and a growing pipeline of development opportunities, ENB has huge investment opportunities. The company has been expanding its earnings at a compound annual rate of 14% since 2008.
Q1, 2022 Overview
For the first quarter of 2022, ENB came out with adjusted earnings of CAD1.7 billion or CAD0.84 per share. This comes against CAD1.6 billion or CAD0.81 a share for Q1, 2021 while falling just below the analysts’ expectations for the quarter.
Adjusted EBITDA went up from CAD3.7 billion in 2021 to CAD4.1 billion in the latest quarter and distributable cash flow (DCF) expanded to $1.52 a share against $1.37 per share.
Additionally, ENB declared its latest quarterly dividend of $0.860 per common share which would be payable on June 1, 2022.
The company remains on track for the guidance of CAD15.0-CAD15.6 billion in EBITDA for full fiscal 2022 with DCF per share of CAD5.20 to CAD5.50.
With its continued growing dividend yield, sound business model, and strong financial profile, ENB is poised for imparting persistent shareholder value despite market instability. The bullish outlook of the industry with risen oil prices and the company’s efforts in renewable energy further boosts its resilience and growth.