Enbridge (NYSE:ENB) is every dividend lover’s dream stock. The Canadian pipeline and utility giant currently offers a dividend yield of almost 7%. That is several times higher than the average dividend stock (the S&P500 The dividend yield is less than 1.5%). Enbridge now has an outstanding track record of increasing its payouts (29 years and counting).

With a high dividend yield and plenty of potential for further dividend increasesEnbridge is the ultimate dividend stock to buy now. This could turn an investment of $1,000 into a passive income of almost $70 per year (and rising).

A rock-solid payout

Enbridge generates a very stable cash flow. Around 98% of earnings before interest, taxes, depreciation and amortization (EBITDA) comes from service cost agreements or long-term contracts. Enbridge’s earnings are so predictable that the company has revised its financial forecast for 18 straight Years.

Enbridge has continued to take steps to improve the stability of its earnings profile. The company is acquiring three natural gas Utilities, This will increase revenues from stable gas distribution businesses increased from 12% to 22%. Enbridge also sold its 42.7% stake in Aux Sable last year. This company operates natural gas liquefaction and fractionation plants that deliver less predictable revenues due to their dependence on commodity price volatility.

In the meantime, the company pays out a reasonable percentage of its stable cash flow to investors in the form of dividends (Enbridge targets a dividend yield of 60-70%). Dividend payout ratio). This gives the company a nice cushion and allows Enbridge to retain a significant percentage of its profits to fund its continued expansion.

Finally, Enbridge has a strong balance sheet with a conservative leverage ratio. The company ended the second quarter with a 4.7x Gearing ratioi.e. within the target range of 4.5x-5.0x. The company expects its leverage ratio to at the lower end of its range as the company completes its acquisitions in the gas utility sector and benefits from the additional revenues from these businesses.

Between the excess cash flow after dividend payment and the debt capacity, Enbridge has 8 Billion to 9 billion Canadian dollars (5.8 to 6.6 billion US dollars) in annual investment capacity.

Lots of fuel for growth

Enbridge has secured C$24 billion (US$17.5 billion) in capital projects to fuel its growth in the coming years. The company has projects in its backlog scheduled for completion through 2028, spanning all four of its business segments (liquids pipelines, gas transmission, gas distribution and storage, and renewable energy). The company expects to use C$6 billion to C$7 billion (US$4.4 billion to C$5.1 billion) per year to fund its secured capital program.

The story continues

Enbridge’s secured capital program should help the company grow EBITDA by approximately 3% annually through at least 2026. In addition, the company expects further earnings growth of 1% to 2% per year through cost savings and optimizations. At the same time, the company estimates that the use of its excess investment capacity in acquisitions and additional investment projects will increase more than 1% to his profit every year.

All in all, Enbridge should Income by around 5% per year. This forecast suggests that Enbridge could increase its dividend by up to 5% per year in the coming years.

Strong overall return potential

Enbridge is a well-oiled dividend machine. The company generates very stable cash flow to pay dividends.

Enbridge now has the financial flexibility expand further its operations, which should grow at about 5% annually. This growing cash flow should give the company enough fuel to continue to increase its dividend. Adding the nearly 7% dividend to the earnings growth rate should enable Enbridge to generate annual total returns of more than 10%. This combination of income and total return potential makes Enbridge an excellent dividend stock Buy for long-term use.

Should you invest $1,000 in Enbridge now?

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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in Enbridge and recommends the company. The Motley Fool has a disclosure policy.

The Ultimate Dividend Stock You Can Buy Now for $1,000 was originally published by The Motley Fool