Calgary-based pipeline company Enbridge (NYSE: ENB) transports about 25% of the crude oil produced in North America and 20% of the natural gas consumed in the U.S.
The stock yields 6.7%, but can it continue to supply shareholders with such a high level of income in the future?
To determine that, we must look at Enbridge’s cash available for distribution (CAD). As you can see from the chart below, Enbridge’s CAD has been rising mightily over the past several years.
Last year, Enbridge paid shareholders $5.18 billion in dividends while generating $7.05 billion in CAD. So it paid out 74% of its cash flow in the form of dividends. I want to see companies paying out 75% or less of their cash flow to shareholders. That way, if the company hits a rough patch, it has a buffer zone to still be able to pay investors their dividends.
In 2021, with CAD expected to rise 10%, Enbridge is forecast to pay out 69% of its cash flow, even though it raised the dividend. So that’s a good sign.
Enbridge has raised the dividend every year for 26 years in a row. Twenty-six years is a long time. Michael Jackson’s song “You Are Not Alone” was topping the charts on today’s date in 1995.
which comes out to $0.66 per share in U.S. dollars. That dividend gives the stock a solid 6.7% yield based on today’s stock price.
Considering that Enbridge has enough cash flow to afford the dividend, that its cash flow is growing and that its management has clearly demonstrated its commitment to the dividend by raising it every year for more than a quarter of a century, the dividend is definitely safe.
Dividend Safety Rating: A
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