Enbridge (NYSE: ENB) is not an exciting company, but that’s actually one of the biggest attractions here. That and an ultra-high dividend yield of around 7.4%. But to really appreciate why you’ll be glad you bought this stock in a few years, you need to take a deeper dive into its business and how it returns value to investors over time.
Enbridge is more than a midstream giant
The energy sector is known for being volatile, but not every company in the industry deserves that label. Upstream (drilling) and downstream (refining and chemicals) businesses are often quite volatile, but midstream businesses like Enbridge usually aren’t. That’s because midstream companies own the energy infrastructure (like pipelines) that connects the upstream to the downstream, and the rest of the world, and they largely charge fees for the use of their assets.
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Enbridge is, basically, a toll taker. And since oil and natural gas are vital to the world functioning smoothly, demand tends to remain strong even when energy prices are weak. Oil pipelines account for around 50% of earnings before interest, taxes, depreciation, and amortization (EBITDA) while natural gas pipelines make up roughly 25%. Which is where the next interesting fact about Enbridge arises.
The rest of the energy giant’s business comes from regulated natural gas utilities (22% of EBITDA) and renewable power investments (3%). Natural gas is cleaner-burning than coal or oil and is seen as a transition fuel. Enbridge recently agreed to buy three natural gas utilities from Dominion Energy, which increased its exposure to this energy niche from 12% up to above 22%. Regulated utility assets are given a monopoly in the regions they serve in exchange for being required to get rates and investment plans approved by the government. That tends to lead to slow and steady growth over time. In short, Enbridge’s business is even more reliable thanks to this investment.
Then there’s the renewable power business, which is fairly small relative to the rest of the company. But then clean energy is still a…
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