1 High-Yield Dividend Stocks to Buy Now and Hold Forever in April

By | April 2, 2024

Enbridge (NYSE: ENB) has been an exceptional investment over the past decades. The Canadian pipeline and utility company has delivered a compound annual total return of more than 11% over the past two decades. That has the S&P500 and annualized total returns of nearly 10%, and its peers in the utility and midstream sectors, with average annual total returns of approximately 8%.

The energy infrastructure company could achieve even higher total returns in the coming years. One factor fueling this view is its ability to seize a ‘once-in-a-generation’ acquisition opportunity that it will close in phases this year. This deal will improve its operations and growth profile, giving the company more fuel to increase its 7.5% dividend.

Seize a unique opportunity that only comes around once in a generation

Last September, Enbridge agreed to buy three natural gas utilities by Dominion for $14 billion. The transaction creates North America’s largest natural gas utility platform with 7 million customers. It pays a very reasonable price for the utilities, about 1.3 times their price enterprise value-to-rate basis and 16.5 times price-earnings ratio.

“Adding natural gas utilities of this size and quality, at a historically attractive level, is a once-in-a-generation opportunity,” CEO Greg Ebel said in the press release unveiling the transaction. He further noted that Enbridge expects the deal to be accretive to distributable cash flow per share in the first year of full ownership, which should increase over time, driven by their strong growth profiles.

Enbridge recently completed the purchase of The East Ohio Gas Company, the first of Dominion’s three gas utility acquisitions. “The addition of a strong Ohio-based gas company is a great strategic fit for Enbridge. It further diversifies our operations and enhances the stable cash flow profile of our assets,” said Michele Harradence, president of gas distribution and storage at Enbridge. . Harradence further noted: “Natural gas utilities are long-lived and are ‘indispensable’ infrastructure for delivering safe, reliable and affordable energy. This gas company will help unify and extend our cash flow growth prospects through the end of this decade. adding a stable, regulated investment that supports our long-term dividend profile.”

The fuel to grow shareholder value

Enbridge expects to complete Dominion’s other two gas utility acquisitions later this year. Once this is the case, the company will receive 22% of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from the very stable gas sector. This will further diversify the business mix while reducing the profit contribution of the liquid pipeline segment to 50% of the total, with the remainder coming from gas transmission (25%) and renewable energy (3%).

The shift to lower carbon energy will pay off in the long term. It should provide Enbridge with additional growth opportunities.

That has already been the case this year. Company recently established a natural gas pipeline and storage joint venture connecting the Permian Basin to the US Gulf Coast. This deal will further diversify cash flow and provide a near-term boost with future upside growth.

These investments have helped improve Enbridge’s long-term growth prospects. The company expects to grow its adjusted EBITDA 7% to 9% annually through 2026, with distributable cash flow increasing by about 3% per share, slowed in the near term by tax changes and a higher number of shares payable. for the Dominion transactions. Meanwhile, waning headwinds should help accelerate cash flow per share growth of 5% annually after 2026, with adjusted EBITDA likely to rise at a similar pace.

Add Enbridge’s already high dividend yield of 7.5% to growing cash flow per share of 3% to 5% per year over the long term, and the company should earn a total annual return between 10% and 12% . That is a very strong return from such a low-risk dividend share.

An incredible investment opportunity

Enbridge is taking advantage of a unique opportunity to acquire three high-quality gas companies. These deals will significantly improve cash flow sustainability and growth profile. Add to that the other growth engines and Enbridge should have the fuel to generate strong total returns over the long term. That makes it a great stock to buy this month and hold for the long term, especially for those looking for an attractive and growing income stream.

Should you invest $1,000 in Enbridge now?

Consider the following before purchasing shares in Enbridge:

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Matt DiLallo has positions in Enbridge. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.

A Once-in-a-Generation Investment Opportunity: 1 High-Yield Dividend Stocks to Buy Now and Hold Forever in April was originally published by The Motley Fool

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