This stock of energy is essential if you want passive income


Jhe energy sector is large and varied, although most investors rightly view it as highly cyclical. Yet the risk of big upturns followed by painful downturns does not really extend to every corner of the energy industry. In particular, midstream energy companies often have very reliable cash flow and a track record of paying dividends. And one of the best names in the midstream niche is the North American giant Enbridge (NYSE: ENB). Here’s why you might want to add it to your portfolio.

Certain bona fide dividends

If you’re thinking about passive income, you’ll want to check out Enbridge’s Dividend History. To begin with, the dividend yield today it is a generous 6.4%. That’s way more than you’d get from SPDR S&P 500 ETF Trust, which only yields around 1.5% today. However, the key for Enbridge is that the dividend that guarantees this return is extremely reliable.

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For starters, the dividend has been increased annually for 27 consecutive years, placing it in the Dividend Aristocrat space. The average annual increase over the past decade is 9.7%. And while recent increases have been more modest (the last increase was just 3%), that’s because management believes the stock isn’t rewarded enough for dividend increases – not because that it does not have enough liquidity for larger increases (see below). If the stock price were to rise and the yield fell to a lower level (for years the yield trended in the single digits), dividend growth could return to more historic levels.

Too much money?

What’s interesting about Enbridge’s dividend today is how safe it is. For starters, the company has an investment rating balance sheet, giving him a great ability to withstand adversity. But it’s also generating about $2 billion in excess cash flow above what it needs to pay the current dividend and fund its existing capital investment plans. This excess cash is currently being used to buy back shares, but could be used for dividend increases, acquisitions or additional internal investment opportunities. Overall, there’s nothing to suggest the dividend is at risk here, especially considering the company’s fairly modest 65% distributable cash flow. The payout ratio for the current dividend.

A strong core

The underlying rationale for all of these facts is that Enbridge operates an extensive network that is heavily priced half-way Company. From the company market capitalization is a whopping $85 billion, making it one of the biggest midsize names in North America. And the vast majority of its revenue comes either from user fees for its pipelines and storage assets – about 84% from earnings before interest, taxes, depreciation and amortization. (EBITDA) — regulated royalties in its natural gas utility operation (12%), or long-term contracts in its clean energy business (4%).

These aren’t exciting deals, but they all provide reliable cash flow to support the dividend. Notably, this remains true whether oil prices are high or low, because Enbridge is paid for the use of its assets. So as long as there is demand, which seems likely for decades to come, Enbridge should be able to provide shareholders with a reliable stream of passive income and, at the same time, keep expanding further into the future of clean energy.

A boring dividend stock to fall in love with

There’s a saying on Wall Street that you shouldn’t fall in love with the stocks you own. But if you’re a long-term investor looking to create a large, reliable stream of passive income, perhaps to supplement your retirement income, Enbridge looks like the type of stock you might want to add to your portfolio and “like” a lot.

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Reuben Gregg Brewer holds positions at Enbridge. The Motley Fool fills positions and endorses Enbridge. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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