Enbridge's debt-to-EBITDA hit 6.3 after Q2. DCF rose 35% to CA$2.9B, covering the 5.5% yield. Guidance for EBITDA and DCF points higher, with 31 years of dividend growth.
Enbridge shares have slipped about 7% over the past month after the midstream company reported second-quarter earnings that showed a rising debt load. The debt-to-EBITDA ratio hit 6.3, the highest in three years, after spending on the Dominion Energy utility acquisition and several pipeline expansions.
The debt number is the headline. But the cash flow story is what dividend investors follow. Enbridge reported distributable cash flow of CA$2.9 billion in the second quarter, up 35.2% from a year earlier. The company targets a DCF payout ratio of 60% to 70%. The current dividend, raised 3% this year to $0.97 a quarter, sits inside that band. At the current share price, the yield is about 5.47%, more than five times the S&P 500 average. The 31st consecutive annual increase is intact.
Enbridge moves roughly 30% of the crude oil produced in North America and delivers nearly 20% of the natural gas consumed in the U.S. The company operates 18,000 miles of crude pipeline and 19,373 miles of natural gas lines, plus solar and wind assets. Scale means 98% of cash flow comes from long-term, rate-regulated contracts with built-in inflation adjustments, the company said.
Adjusted earnings per share came in at CA$0.63, down 3% from a year earlier. EBITDA rose just 2% to CA$4.77 billion. The softness in earnings was expected, given the upfront spending on projects that have not yet started producing revenue. Management issued guidance that points higher. The company expects full-year DCF of CA$5.70 to CA$6.10 per share, up about 3.5% at the midpoint. Adjusted EBITDA should land between CA$20.2 billion and CA$20.8 billion, up 4%.
The debt is tied to visible growth. Enbridge closed its purchase of Dominion Energy's natural gas utilities last year, adding rate-regulated customers and predictable revenue. The Sunrise Expansion in the Pacific Northwest and a 348-mile Vector Pipeline expansion from Eastern Canada into the U.S. Midwest are under way. On the power side, the company is working through more than 50 potential deals to connect natural gas infrastructure to regional grids and data centers. Each project takes capital now and produces cash later.
AlphaScala's Alpha Score rates ENB at 58 out of 100, a Moderate score, reflecting the balance between the debt overhang and the steady cash flow that supports the dividend. The stock page is at ENB stock page.
For an infrastructure company with a 5.5% yield and 31 consecutive years of increases, the debt will weigh on earnings growth for a few quarters. The pipeline of new assets should lift revenue for longer. The DCF already covers the dividend.
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