The significant wind farm investments made by Enbridge are just getting started. This marks the beginning of a significant investment phase for the energy stock market.
The oil industry is one of Enbridge‘s (ENB -0.32%) areas of operation, but it is not the company’s primary focus. One of the reasons this industry leader is so appealing to investors is its dividend yield of 6.4%.
An essential aspect to look into is the relatively new but rapidly expanding clean energy sector. Recently, there has been significant news regarding this topic, and more of it will emerge in the following few years.
The basis of everything
It would be futile to examine Enbridge without first taking into consideration the fact that oil pipelines account for 58% of the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Pipelines for natural gas contribute an additional 26%. When everything is considered, oil and natural gas pipelines account for an enormous 84% of EBITDA. There is no denying that Enbridge is an oil and gas firm.
Notably, a natural gas utility company accounts for an additional 12% of EBITDA, making carbon fuels the primary focus of 96% of Enbridge’s operations. This demonstrates the company’s major interest in carbon fuels, which is an essential point to emphasize.
Companies in this category have reliable cash flows because they are either fee-based or governed by strict government regulations, both of which provide a steady stream of revenue. Due in part to its stable revenue stream, Enbridge has increased its dividend payment every year for the past 28 consecutive years. It also contributes to the justification of the large yield made possible by this income structure.
In addition, with around 2 billion Canadian dollars ($1.5 billion) in cash flow available, which is in excess of what the company need to pay its current dividend and operate its business (including projected capital projects), that dividend appears to be quite secure.
However, the portion of Enbridge’s EBITDA that is not related to the carbon area constitutes a minuscule 4% of the total. This is where the company’s most intriguing tale can be found.
The growth of the clean energy industry
Enbridge’s clean energy division accounts for the remainder of the company’s EBITDA. Several things fall under that umbrella, but the most notable at the time are the advancements in offshore wind technology in Europe.
Late in 2022, the business made the announcement that the Saint-Nazaire offshore wind project, which was France’s first of its kind, is now fully operational. That $676 million investment was made pretty much on time, and it is anticipated that it will begin contributing to cash flows in the year 2023.
Due to the fact that the business anticipates the renewable energy division’s EBITDA to be relatively unchanged in 2023, this expenditure by itself will not have much of an impact. However, Saint-Nazaire is the first of several offshore wind projects that will be developed throughout Europe. There is one more project that is anticipated to begin operations in 2023, and there is one that is anticipated to begin operations in 2025; the combined value of these capital investments is 1.2 billion dollars.
The Saint-Nazaire project has an approximate output of 480 megawatts. The capacity will increase by close to one gigawatt as a result of the subsequent two projects. When considered as a whole, these three projects provide a sizable increase in capacity.
In addition to this, Enbridge is investing in its key markets across North America. Thus this news comes the as good news. Because of this, investors need to start paying more attention right now, as the company is beginning to ramp up its capacity to produce renewable energy.
The meticulous and slow-moving
Enbridge is not going to suddenly transform its business model, but investors shouldn’t desire or expect that to happen anyhow. It is making use of its core carbon operations, which continue to provide healthy cash flows, in order to assist it in expanding into a field that is seeing an increase in demand, specifically renewable energy.
The most ambitious plans it has formulated about this front (offshore wind in Europe) are beginning to bear fruit and will continue to do so for the next few years. Even if Enbridge continues to pay a substantial dividend that is on the rise, investors might be persuaded to rethink their thoughts about the firm’s long-term prospects if the company continues to have success in its clean energy initiatives.
In other words, get involved right away before Wall Street realizes the changes that are occurring in the renewable energy sector here.
