[GAM]Double earnings growth and 6.5% dividend yield “Increase ENB”

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[서울=뉴스핌] Reporter Sookhye Hwang = Energy infrastructure stocks that have more than doubled profit growth in recent quarters and provide a dividend yield of around 6.5% are attracting the attention of year-end dividend stock investors.

Enbridge (ENB), headquartered in Calgary, Canada, is Canada’s largest oil pipeline company and the largest gas utility company in North America, and is a dividend aristocrat that has raised dividends every year over the past 30 years.

Enbridge’s oil pipeline and gas pipeline business is an important strategic asset not only for the company’s growth but also for the economies of the United States and Canada.

Approximately 30% of the crude oil produced in the United States and Canada and 20% of the natural gas used in the United States are supplied through the company’s network.

In particular, the company’s Mainline system is the largest transmission network in North America. Through this, crude oil is supplied from western Canada to the eastern region and the Midwest region of the United States.

Some industry experts feared that the Trans Mountain pipeline expansion would hurt Enbridge’s mainline network as Canadian crude oil companies have more distribution options to choose from, but this did not happen.

The company predicts that the crude oil transportation volume of the mainline network will exceed 3 million barrels per day on average by 2024. This is roughly the same level as the 2023 volume before the start of the Trans Mountain expansion project.

Enbridge’s gas pipeline project [사진=업체 제공]

Enbridge’s presence is expanding further. It is a move to strengthen its market dominance day by day by securing a crude oil export terminal in Texas, USA and participating as a partner in the Woodfiber liquefied natural gas (LNG) facility in British Columbia.

As the introduction of artificial intelligence (AI) technology spreads, the forecast that power demand in data centers will increase over the long term makes us optimistic about Enbridge’s performance improvement.

The expansion of production by Canadian crude oil companies also provides favorable conditions for Enbridge. According to Bloomberg, Canada’s crude oil production recorded 5.1 million barrels per day in 2023, and is expected to increase by 500,000 barrels per day in 2024.

Enbridge stock price trend [자료=블룸버그]

According to the U.S. Energy Information Administration (EIA), Canada’s crude oil exports to the U.S. were 4.3 million barrels per day as of July 2024. After setting an all-time high of 4 million barrels per day in 2023, the upward trend appears to be continuing.

Enbridge announced that, as in July and August, there was a situation in which demand for oil pipelines exceeded supply again in November.

Market experts predict that a shortage of oil pipelines will occur soon as Canada’s crude oil production increases significantly.

Enbridge’s position in the natural gas sector has also been strengthened. By pursuing several large mergers and acquisitions (M&As) in 2024, the company has significantly expanded its market dominance in North America.

According to major foreign media, Enbridge acquired a total of three gas utility assets from Dominion Energy. This merger and acquisition (M&A) played a decisive role in establishing the company as the largest natural gas utility company in North America.

The assets Enbridge purchased from Dominion Energy included East Ohio Gas, Questa Gas, and Public Service Company, with a total acquisition price of $14 billion.

The company completed the acquisition of large-scale assets in the third quarter, increasing natural gas supply in the United States and Canada to 9.3 billion cubic feet per day. The number of customers using the company’s gas pipes in the United States and Canada exceeds 7 million.

In recent quarters, the company produced strong profit growth. Net profit in the third quarter of 2024 was 1.29 billion Canadian dollars, more than double the 532 million Canadian dollars in the same period last year. Earnings per share (EPS) was CAD 0.55, in line with Wall Street expectations.

During the same period, sales reached 6.77 billion Canadian dollars, a 49% increase compared to the same period last year. However, it fell short of market experts’ expectations of $6.8 billion.

Market experts place great significance on the significant increase in EBITDA (earnings before corporate tax, depreciation, and interest) in the third quarter.

Enbridge’s third-quarter EBITDA surged 12% compared to before the acquisition of Dominion Energy’s gas utility facilities.

These mergers and acquisitions (M&A) had the effect of increasing adjusted EBITDA by 8% in the second quarter, and the profitability effect appears to be expanding.

Market experts predict a scenario in which the profit growth cycle will continue for several years to come. This means that as data center power demand increases over the long term while the company’s assets are increased, it will provide a growth engine for Enbridge.

In addition, the company invested $200 million in capital to purchase a dock for storage or repair of goods at the site and port. The plan is to use this to expand the Enbridge Ingleside Energy Center.

In addition, the company secured a 15% stake in the Delaware Basin Residue system located in West Texas, USA, during the third quarter of 2024.

In this regard, market experts interpret it as a move to expand the Permian strategy while further strengthening customer service.

The movement of major countries’ central banks, led by the Federal Reserve System (Fed), to lower interest rates is also considered a positive factor for Enbridge. The explanation is that interest costs are incurred in the process of raising the funds needed to purchase large-scale assets, and monetary easing movements are easing the burden.

According to the company’s financial statements, as of the end of the third quarter, long-term debt was 87.3 billion Canadian dollars, and cash and cash equivalents were 1.88 billion Canadian dollars.

In addition, market experts were delighted with the news that the Canadian Energy Regulatory Agency approved Enbridge’s new oil pipeline usage fee system.

The company has been negotiating with Canadian crude oil companies for about a year and a half over oil pipeline usage fees, and is expected to see a boost in profits as it has received final approval from the Energy Regulatory Agency.

shhwang@newspim.com