This 7.5%-Yielding Dividend Stock Has a Powerful Emerging Growth Driver
For several decades, fossil fuels have powered Enbridge's (NYSE: ENB) dividend. The Canadian pipeline and utility operator has paid dividends for over 69 years. It has increased its payout for the past 29 straight years, fueled primarily by the growing cash flows of its fossil fuel infrastructure operations.
Oil and gas will remain vital fuel sources for Enbridge's high-yielding dividend, currently 7.5%, for at least the next several years. However, the company has another driver that could deliver powerful growth in the decades to come: renewable energy. Here's a closer look at this emerging growth driver.
Building a meaningful renewable energy platform
Enbridge has a sizable renewable energy platform. It operates 5.3 gigawatts (GW) of capacity across North America and Europe. That's enough to deliver clean energy to 5.7 million people. The company's renewable energy operations include onshore wind and solar energy facilities across the U.S. and Canada and several offshore wind farms in Europe.
While Enbridge has a large-scale renewable power platform, it's small compared to its other operations. This year, Enbridge will earn half its profits from liquids pipelines, 25% from gas transmission, 22% from gas distribution, and 3% from renewable power.
The company built its renewables platform through organic development projects and acquisitions. It has invested heavily in funding several offshore wind farm developments in Europe. Meanwhile, recent acquisitions included buying Tri Global Energy, the third-largest U.S. onshore wind energy developer, and purchasing additional interest in two European offshore wind farms.
A platform with powerful growth potential
Enbridge believes its North American onshore renewables and European offshore wind platforms have tremendous growth potential. Several projects are currently under construction in both regions, and many more potential projects are in the pipeline.
Tri Global had 7 GW of wind and solar energy projects under development when Enbridge acquired the platform in late 2022. The company was developing 3.9 GW of projects for operating sponsors that would acquire them upon completion. However, Tri Global had another 3 GW of wholly owned projects in late-stage development that Enbridge could own and operate.
In addition, Enbridge bought a 50% interest to participate in the construction of the Fox Squirrel solar project in the U.S. last year. The first phase of the ground-mounted solar facility, which is now in service, has 150 megawatts (MW) of capacity. The project has two other phases, which could boost its capacity to 577 MW by the end of this year. Fox Squirrel is an expansion of Enbridge's partnership with EDF Renewables. The companies are also developing several offshore wind farms in Europe.
Enbridge is building Fecamp, Calvados, and Provence Grand Large offshore France. Meanwhile, the company and its partners have secured the development of the Dunkirk, Rampion Extension, and Normandy projects. It's also working on four other unsecured development projects.
Enbridge sees the potential to develop 6.2 GW of North American onshore capacity by the end of this decade and 5.9 GW of European offshore projects over the long term. The company believes it could invest up to $1.5 billion Canadian ($1.1 billion) annually in renewable energy development projects. These projects will help grow its cash flow in the coming years, giving it more power to increase its dividend.
Meanwhile, Enbridge has the financial flexibility to continue making acquisitions in the space as opportunities arise. It could buy development platforms, purchase interests in operating projects, or invest in development projects started by others. Given the immense need for capital to build out renewable energy capacity, Enbridge should have plenty of opportunities to invest in the sector.
A potentially powerful long-term growth driver
Enbridge built a large-scale renewable-energy platform. While it's not a huge revenue contributor for the company now, it appears poised to become a meaningful growth driver in the future. It should be able to power the company's growth in the decades ahead, giving Enbridge the fuel to continue increasing its high-yielding dividend.
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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
This 7.5%-Yielding Dividend Stock Has a Powerful Emerging Growth Driver was originally published by The Motley Fool
