Enbridge (NYSE:ENB), a major player in Canada's energy sector, has seen its net debt balloon from $25 billion in 2013 to over $75 billion as of today. This debt constitutes 41% of the company's enterprise value and is projected to rise by an additional $15 billion following the recent incorporation of a natural gas utility portfolio.
The company's stock has registered a meager 2% growth over the past decade. When dividends are included, the total capital return for shareholders during this period jumps to 61%, translating to an annualized return of 4.88%. Despite these returns barely exceeding the TSX Index and underperforming a guaranteed investment certificate (GIC), Enbridge continues to attract investors with its hefty 7.7% dividend yield.
However, the sustainability of these high dividends is being questioned as the company's share count has surged by 150% since 2013 to reach 2 billion shares. This increase in share count puts pressure on dividend payouts, as more shares necessitate larger payouts.
Enbridge's acquisition of the utility was seen as a strategic move to offset declining returns from its main energy pipeline due to competition from new Canadian pipelines. Yet, the contribution of this acquisition to earnings remains uncertain. The company also issued an additional 100 million shares (a 5% dilution) to finance the utility acquisition, further increasing the share count.
Despite Enbridge's attractive dividend yield and sizeable asset portfolio, an analyst team suggests caution when considering investing in the company due to its underperformance against the TSX and a gloomy outlook featuring little to no earnings growth. The rising bond interest rates surpassing 6% could severely affect earnings and dividend growth, adding another layer of risk for potential investors.
InvestingPro Insights
To further enrich your understanding of Enbridge's financial landscape, let's examine some real-time data and tips from InvestingPro.
The company has been a reliable dividend payer, having raised its dividend for 21 consecutive years and maintained dividend payments for 51 years straight. This is an important InvestingPro Tip to consider if you're an income-focused investor. However, it's worth noting that the company is currently trading at a relatively high earnings multiple with a P/E ratio of 30.83.
Regarding the company's financial metrics, Enbridge has a sizeable market cap of 71.93 billion USD, but it's facing a declining trend in earnings per share. In the last twelve months as of Q3 2023, the company's revenue has been declining at -12.65%.
The company's significant dividend yield of 7.66% as of the end of 2023 is noteworthy. Yet, the company's short-term obligations exceed its liquid assets, which could potentially affect its ability to maintain such a high dividend yield in the future.
Remember, these are just a couple of the InvestingPro Tips available. There are more than ten additional tips listed in InvestingPro that can provide further insights into Enbridge's financial performance and potential investment risks or opportunities.
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