Enbridge (NYSE: ENB) has undergone several changes over the past year. The Canadian pipeline giant not only sold a few noncore assets and acquired all its publicly traded affiliates, but it also completed several expansion projects. These moves enabled the company to improve its financial profile and streamline its corporate structure while continuing to expand earnings.
The next year likely won't be quite as busy, though investors can expect more progress on Enbridge's strategic plan. Here's a look at where the company should be one year from now.
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Anticipate sustained earnings growth
Enbridge is in year two of a three-year strategic plan that should see the company expand earnings at a more than 10% compound annual growth rate. However, after increasing profitability by 20% last year, earnings growth is anticipated to moderate in 2019 due in part to the asset sales it completed last year as well as fewer expansion project completions. Still, the company sees earnings increasing by another 5% at the midpoint of its guidance range.
Meanwhile, earnings growth should start reaccelerating by 2020 because the bulk of this year's projects should enter service in the second half. Add the uplift from those expansions to the ones it expects to complete in 2020, and Enbridge anticipates that earnings will grow by 10% at the midpoint of its forecast next year.
Expect another 10% dividend increase
Enbridge's confidence in continued earnings growth leads the company to believe it can achieve its goal to increase its dividend at a 10% annual rate through 2020. Thus, investors should expect the payout to be 10% higher by this time next year. With the stock already yielding an above-average 6.1%, this outlook implies that investors who buy today can lock in an even more attractive 6.7% payout for 2020.
Look for increased visibility into future growth
Enbridge currently has 13 billion Canadian dollars ($9.7 billion) of expansion projects under construction that should start service after this year. Most of those projects -- roughly CA$11 billion ($8.2 billion) -- should come on line by the end of 2020. That leaves the company with only about CA$2 billion ($1.5 billion) of capital projects lined up beyond this year, which is well short of its capacity to self-fund CA$5 billion to CA$6 billion ($3.7 billion-$4.5 billion) in expansions each year.
Because of that, the company should green-light several new projects this year. It has quite a few in development. For example, it's working with Kinder Morgan and Oiltanking to develop an offshore oil export terminal in Texas. That project could start service in late 2021 to early 2022 if the partners can get all the necessary approvals and customer support to sanction it in the next year. In addition, the company is pursuing several billion dollars' worth of gas transmission projects in the U.S. as well as western Canada.
Enbridge's ability to secure additional projects over the next year will enhance the visibility of its long-term growth prospects. If the company can achieve its targeted annual investment level, that should support 5% to 7% yearly growth in cash flow per share, likely fueling a similar growth rate in its dividend.
The forward progress should continue
Enbridge is coming off a busy year. Though the next 12 months likely won't be quite as active, it's a crucial building year for the future. Not only will the company need to continue construction on several important projects that will reaccelerate growth in 2020, but it will likely sanction a few more to fuel growth beyond next year. Its success in both areas will improve the long-term sustainability and growth potential of the company's already high-yielding dividend.
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