Enbridge Inc (TSX:ENB) is one of Canada’s highest yielding large-cap dividend stocks. With a 7.5% dividend yield, it can produce a very large amount of passive income. For example, if you invest $100,000 into ENB stock, and the payout doesn’t change, you will get $7,500 back in annual dividend income. Historically, the dividend payout has actually risen rather than stay constant. So, if past history is any indicator, you’ll keep getting large and growing dividend payments if you invest in ENB stock.
Unfortunately, with stocks, past history is not always such a good indicator. There are many cases in history of companies doing well consistently over many decades, only to abruptly fail after a change in management – the release of a disruptive new technology, or the entry of a new competitor to the market. In this article, I will attempt to gauge where Enbridge will be in 10 years’ time, by looking at the present trends in its business.
Growing revenue
Historically, Enbridge’s revenue has been stable, with a tendency toward slight positive growth. Over the last 10 years, it has grown its revenue at 3.8% CAGR, which is quite good. On the other hand, the five-year revenue growth rate shows a slight decline: -0.8% CAGR. Enbridge’s stock is flat over the last five years, and honestly, the way the stock is trading is congruent with how the company is doing. Profit does not always conform to revenue, however, so let’s look at how Enbridge is doing on the earnings front.
Earnings trend: mixed
In the most recent quarter, Enbridge delivered the following earnings metrics:
- $9.8 billion in revenue, down 15%.
- $1.8 billion in operating income (EBIT), down 0.49%.
- $621 million in net income, down 55%.
- $0.32 in earnings per share (EPS), down 59%.
As you can see, the most recent quarter was quite disappointing, with negative growth in every single income statement category. On the other hand, the situation in the trailing 12-month (ttm) period was a little better, boasting metrics like:
- $33 billion in revenue, down 12.6%.
- $6.9 billion in EBIT, up 15%.
- $2.2 billion in net income, down 42%.
- $1.10 in earnings per share (EPS), down 44%.
As you can see, most of the growth rates are negative here too, but at least there was a little positive growth in EBIT.
Is there anything going on at Enbridge that could cause these trends to reverse? In the short term, there’s not much, although an increase in oil shipments would help. The company is going to have to re-route one of its pipelines that runs through Wisconsin, that’s likely to cost a lot of money, which will hurt earnings.
Conclusion: Dividend growth will be slower going forward
Looking at a variety of different factors, including value, growth and profitability, it looks like Enbridge’s dividend growth will be slower in the future compared to what it was in the past. That doesn’t mean the stock isn’t a buy, but it does mean that future results may be tame compared to the company’s fast growth days in the 1990s and 2000s.
