Enbridge (TSX:ENB) has long been a staple in the energy sector, with its vast network of oil and gas pipelines across North America, alongside its natural gas distribution and storage facilities. This infrastructure backbone ensures stable cash flows, largely insulated from commodity price fluctuations due to its cost-of-service or contracted asset base and investment-grade customer roster.
Enbridge’s resilience is reflected in its robust financials, with adjusted EBITDA climbing nearly 10% year-over-year to $9.3 billion in the first half of the year. Additionally, its distributable cash flow rose 6% to $6.3 billion, demonstrating solid performance despite market volatility.
Notably, the recent cut in the Bank of Canada’s policy interest rate from 5% to 4.3% has spurred a surge in high-yield income stocks, including Enbridge. Consequently, the energy stock has appreciated by approximately 27% since its April lows, reducing its yield from 8.3% to 6.5%.
Despite its stable cash flow and impressive historical dividend payouts, Enbridge’s potential for near-term dividend growth appears modest, with management forecasting a 3% annual increase in distributable cash flow per share, which should deliver similar dividend growth through 2026. Investors seeking higher growth may want to consider alternatives beyond Enbridge.
Brookfield Infrastructure: A superior growth opportunity
For those seeking higher growth, Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) presents a more compelling alternative. Unlike Enbridge, Brookfield Infrastructure benefits from a globally diversified portfolio, comprising utility, transport, midstream, and data infrastructure assets. This diversification not only spreads risk but also enhances growth prospects across different sectors.
In its second-quarter letter to unitholders, Brookfield Infrastructure highlighted, in the first half of the year, its focus on strategic growth through tuck-in, follow-on, and organic opportunities within its existing operations. This approach has proven effective, with the utility securing or completing seven acquisitions valued at nearly US$4 billion (with BIP’s equity share amounting to US$500 million).
Brookfield’s strategic acquisitions and robust project pipeline are underscored by its record-level capital project backlog of US$7.7 billion. Management anticipates increased transaction activity in the latter half of the year, further boosting long-term growth prospects. This proactive approach contrasts with the more static growth forecast for Enbridge, positioning Brookfield Infrastructure as a more attractive option for investors seeking increased upside potential.
Brookfield Infrastructure’s impressive track record
Brookfield Infrastructure Partners has demonstrated a remarkable track record of consistent growth and reliable cash distributions. The stock has increased its cash distribution for 15 consecutive years, showcasing a commitment to delivering value to its unitholders.
Over the past decade, Brookfield Infrastructure achieved a compound annual growth rate (CAGR) of 8.3% in its cash distribution per unit, while maintaining an average and sustainable payout ratio of about 70% of its funds from operations (FFO). This history of dependable distribution growth highlights the company’s strong financial health and operational efficiency.
The Foolish investor takeaway
Looking ahead, Brookfield Infrastructure targets organic FFO growth of 6-9%, which supports a projected annual cash distribution growth rate of 5-9%. At its current price of $45.48 per unit, Brookfield Infrastructure offers a cash distribution yield of 4.8%, providing an attractive balance of yield and growth potential.
For investors seeking a blend of stability and expansive growth opportunities, the top utility stock stands out as a superior choice compared to the more mature and slower-growing Enbridge.
