Enbridge (NYSE: ENB) Took a brutal strike last year. The Canadian pipeline and utility company agreed to acquire three natural gas companies Dominion for $14 billion. Enbridge’s CEO Greg Ebel stated at the time of the deal, “Adding natural gas utilities of this size and quality, at a historically attractive multiple, is a once-in-a-generation opportunity.” The deals will increase cash flow per share, overall earnings stability and growth profile.
The company recently closed the second of three transactions. That brought it one step closer to fully realizing this generation opportunity to create North America’s largest gas and natural gas power plant.utility franchise in a highly profitable deal that should fuel growth for several years.
Two down, one to go
Enbridge recently completed its acquisition of Questar Gas and related Wexpro businesses from Dominion. Questar distributes gas to approximately 1.2 million people customers inside Utah, Wyoming and Idaho. It has a service charge agreement with Wexpro for delivery it with trustworthy natural gas. The acquisition adds “another strong gas company to Enbridge’s portfolio,” said Michele Harradence, president of Enbridge’s gas distribution and storage platform. Harradence further noted that Questar and Wexpro “increase the scale and breadth of our existing low-risk utility business model and support our long-term dividend growth profile by providing stable, predictable cash flows.”
The closures of Questar and Wexpro follow the completion of the company’s acquisition of East Ohio Gas Company (EOG) in March. EOG is the largest of the three gas companies Enbridge is acquire of Dominion. Like Questar and Wexpro, the addition of EOG will further diversify and enhance the business the stability of Enbridge’s cash flow. These two companies will contribute approximately 80% of the annual revenues of the utilities that Enbridge expects to acquire from Dominion.
Enbridge is working to obtain the final regulatory approvals necessary to complete its purchase of Public Service Company of North Carolina (PSNC) from Dominion. That deal is on track to close this year. That would further diversify and strengthen the sources of stable cash flow.
Incremental income and visible profit growth
Enbridge has secured these utility acquisitions at historically attractive valuation multiples. Therefore, the company expects the utilities to contribute to distributable cash flow per share in the first full year of ownership. Now that two of the three deals have closed, they will provide Enbridge with additional revenue and cash flow in 2024, with the full benefit expected in 2025.
The other factor that made these utility acquisitions possible So attractive are their embedded growth profiles. They serve regions with growing economies and populations. That contributes to Enbridge’s vision that it will be able to invest approximately 1.7 billion Canadian dollars ($1.2 billion) annually in long-term, low-risk capital projects in these utilities to maintain their infrastructure and expand. These factors drive the company’s view that utilities should grow their profits at a compound annual rate of 8% in the coming years.
With two deals now in place, Enbridge has secured 80% of the stable and growing cash flow these natural gas companies expect to generate in the coming years. They add to the company’s already robust growth engines, which should increase cash flow per share by 3% and around 5% annually through 2026. per year in the medium term. That steady profit growth should give Enbridge the fuel to increase it further high-yield dividend. Enbridge has increased its payout for almost three decades in a row.
Almost 80% of the way there
Enbridge has now completed two of three acquisitions of Dominion’s gas business, which account for about 80% of the revenue it expects these companies to generate. Barring any setbacks, the company should complete the third transaction later this year. This one-time investment opportunity will significantly improve the stability of Enbridge’s cash flow and long-term growth profile. Therefore, the company should have enough fuel to continue increasing its dividend. That makes it a great option for investors looking for a large passive income stream that should increase steadily in the future.
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Matt DiLallo has positions in Enbridge. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
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