This midstream company and its ultra-high-yield dividend should shine bright on income investors’ radars.
Distributing dividends to shareholders for 69 years, Enbridge (ENB 0.56%) is likely a familiar name to income investors who spend some time in the oil patch. Over the past three decades, the company’s commitment to rewarding shareholders has been especially clear. Should Enbridge achieve its 2024 dividend target of 3.66 Canadian dollars per share, the energy company will have powered its dividend higher at a 10% compound annual growth rate since 1995.
But that’s just scratching the surface. Let’s dig in a little deeper and see what else there is to know about Enbridge’s dividend.
Expansive midstream operations fuel the company’s hefty payout
Brandishing itself as operating the “world’s longest and most complex oil and liquids transportation system,” Enbridge also has extensive natural gas and renewable-energy operations. These businesses help the midstream company generate strong cash flow, which is the source of its dividend.
In the first quarter of 2024, for example, Enbridge reported distributable cash flow of CA$1.63 per share. Enbridge makes quarterly dividend payments of CA$0.915 per share, so its stock now offers a forward dividend yield of about 7.3%.
With this ultra-high-yield dividend, Enbridge stock is appealing to those looking to supplement their passive-income streams, but skeptics are likely curious about the company’s financial well-being. Targeting a payout ratio of 60% to 70% of Enbridge’s distributable cash flow, management seems committed to not jeopardizing its financial position just to make shareholders happy. Further assurance of the company’s financial strength is its balance sheet, which both Moody’s and Standard & Poor’s have rated as investment grade.
Should you fuel your portfolio with Enbridge stock?
Those looking for passive income should certainly give Enbridge a serious look. For those who ultimately decide to click the buy button, it’s important to consistently monitor the company’s financial health, making sure that the high payout isn’t imperiling the company’s financials. Besides a distributable cash-flow payout ratio exceeding 70% — the upper limit of management’s target range — investors should stay attentive to downgrades from rating agencies.
Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
