Investing $2,000 in the Most Profitable Energy Stock with High Dividends Immediately
Enbridge's (ENB 0.74%) substantial 6.4% dividend yield is set to be the major contributor to an investor's returns over time. Given its nature as an ultra-high-yield stock, this is only to be expected. Furthermore, the anticipated modest dividend growth here could see this income stream's purchasing power outpace inflation.
If you've $2,000 (or more) to invest with the intention of establishing a passive income stream, Enbridge's stock should be a strong consideration at present.
Enbridge boasts a commendable dividend history
Enbridge has recently announced plans to boost its dividend by 3% in 2025, marking the company's third consecutive decade of annual increases (in Canadian dollars). As such, it is undeniably a dependable dividend stock.
The high 6.4% dividend yield is not indicative of weakness but rather a testament to the field in which Enbridge operates, the midstream segment of the broader energy market. Midstream stocks are renowned for offering substantial returns to shareholders.
Whilst Enbridge operates much in the same manner as most of its peers with about 50% of earnings before interest, taxes, depreciation, and amortization stemming from oil pipelines and another 25% from natural gas pipelines; it sets itself apart with its unique approach to the remaining 25%. Here, roughly 22% of earnings before interest, taxes, depreciation, and amortization are derived from natural gas utilities, with the remaining 3% coming from renewable power investments.
All of the sectors in which Enbridge operates are characterized by fee-driven, contract-based, or government-regulated operations. As such, they all provide lucrative and unwavering cash flows to support the dividend. However, aside from its traditional oil and gas ventures, the utility and clean energy divisions offer diversification and highlight a crucial management objective: ensuring the world has the energy it needs when it requires it.
Enbridge is a gradual, resilient hare
Essentially, Enbridge is utilizing its profits from dirtier energy sources (oil) to invest in cleaner alternatives (natural gas and clean energy). Its most recent venture was the acquisition of three natural gas utilities from Dominion Energy (D -0.02%). This move shifted the company's energy focus further towards natural gas - a transition fuel due to its cleaner burning properties against coal and oil in the broader clean energy transition.
Large-scale transformations like these are unlikely to occur every year. However, Enbridge intends to leverage its capital investment plans to support annual distributable cash flow growth of roughly 3% to 5% in the long term. As it incorporates these three utilities, growth is projected to be at the lower end of the range; but as subsequent capital investments come online, distributable cash flow growth should move up towards the higher end. The dividend is expected to grow alongside distributable cash flow growth.
Management has a capital investment strategy totaling $27 billion today, with plans to carry it through until at least 2029. It estimates that it can sustain up to $9 billion in annual capital investments, implying that there is room for growth in the latter years. To be fair, Enbridge is a significant company with the need to make substantial investments to impact its top and bottom lines. Yet, with such a wealth of investment opportunities ahead, it seems likely that it will meet its dividend growth ambitions.
Add 4% to 6% for a total of 10%
Investors generally anticipate the stock market to yield an annual return of around 10%. Taking a simplified approach, Enbridge nearly achieves this target with its 6.1% yield. By adding the expected dividend growth of roughly 4% yearly, which is likely to equate to a similar increase in share value, you arrive at 6% in addition to 4%, totaling 10%. And like its dependable dividend stock, it carries a well-defined business strategy and unwavering cash flows to back this up. Such a proposition should spark interest in income-focused investors, regardless of their investment sum, $2,000 or $200,000.
If you're interested in investing in stocks with a focus on dividends, Enbridge's high 6.4% dividend yield could be appealing. The company's plans to boost its dividend by 3% in 2025 and its historical track record of annual dividend increases make Enbridge a reliable choice for income-focused investors.
Given the nature of Enbridge's midstream operations in the energy market, its substantial dividend yield is not a sign of weakness but rather a testament to the lucrative returns offered by this sector. By investing in cleaner energy alternatives, such as natural gas and renewable power, Enbridge is not only diversifying its portfolio but also aligning with the global shift towards cleaner energy sources.
