History says this 7% yielding stock will pay you a bigger dividend next year, even if there is a recession

There are growing concerns that the economy is heading for a recession. Higher interest rates are starting to hurt economic growth, and many worry that if the Federal Reserve waits too long to cut rates, it could trigger a recession.

While a recession might have a major impact on some companies, it probably won’t affect them Enbridge (ENB 1.59%) not at all The most important North American PIPE and utility the operator generates a very sustainable cash flow and has very visible growth prospects. So even if there is a recession next year, Enbridge will have enough fuel to keep raising its dividend with a yield of nearly 7%.

A track record of consistency

Enbridge has paid dividends to its investors for over 69 consecutive years. At the end of 2023, the company recorded its 29th consecutive year of payout growth when it increased its dividend by 3.1% for the year. That period included three recessions and several other notable oil market declines.

The company’s low-risk business model is an important factor in its remarkable consistency. Enbridge at present he gets 98% of them earnings before interest, taxes, depreciation and amortization (EBITDA) from fixed service costs or contracted assets. Its earnings are so predictable that it has hit its annual financial guidance for 18 consecutive years, including two recessions and two other periods of oil market dislocation.

Enbridge has worked to increase the stability of its earnings profile by modernizing its portfolio. For example, he sold assets with exposure to commodity prices (such as its investments in Aux Sable and DCP Midstream) and recycled that capital in stable assets, including three natural gas utilities from which it purchases Dominion.

The company also has an incredibly conservative financial profile. Enbridge has a reasonable dividend payout ratio of 60% to 70% of its stable cash flow. This allows it to retain billions of dollars in excess cash flow each year to fund new investments and maintain a strong balance sheet. The company at present boasts an investment grade credit rating backed by a leverage ratio towards the lower end of its target range of 4.5-5.0 times. It expects leverage to decline as it captures the full benefits of its utility acquisitions.

A lot of growth is coming down PIPE

Enbridge expects its utility acquisitions to move the needle in 2025 and beyond. The transactions are anticipated to add to its cash flow in the first full year of ownership, which should increase over time. It is investing several billion dollars in capital in these utilities over the next three years. This should lead to an 8% increase in earnings for those businesses.

Those capital projects are only part of Enbridge’s backlog. The company’s guaranteed capital program currently stands at C$24 billion ($17.7 billion). It has projects under construction that should be operational by 2028, including new natural gas pipelines, oil storage and export capacity additions, offshore wind farms and more.

Enbridge’s guaranteed capital project stock alone should grow its EBITDA by about 3% annually. In addition, the company expects cost savings and optimizations to add another 1% to 2% to the bottom line each year.

The company’s secured growth program will cost it C$6 billion – C$7 billion (C$4.4 billion – C$5.2 billion) per year. That’s less than the CA$8 billion-CA$9 billion ($5.9 billion-$6.6 billion) annual investment capacity it has when it adds its excess free cash flow after which paid dividends on its additional debt capacity. Using its excess capacity to make consolidated acquisitions or sanction additional capital projects could add another 1%+ to its annual earnings growth rate.

With its earnings growing at about 5% annually, Enbridge has the fuel to continue raising its dividend. She sees the potential to increase her pay by about 3% annually through 2026 and up to 5% per year after that.

If history is any guide, this payout will continue INCREASE

Enbridge has easily weathered recessions in recent decades thanks to the overall stability of its low-risk business model. His business generates ever increasing earnings and cash flow. Given the strength of its financial profile and the visibility of its growth prospects, this should continue into 2025 and beyond. Because of this, it is a great low-risk dividend stocks to buy if you worry a recession is near.