This 7%-Yielding Dividend Stock Should Be Your First Choice for Income and Upside

Enbridge (NYSE: ENB) is North America's largest energy infrastructure operator. The Canadian pipeline and utility company transports 30% of the oil produced in North America and 20% of the gas consumed in the U.S. and operates the continent's largest gas utility. And for good measure, it's a leading global renewable power producer.

Those assets help Enbridge pay a well-supported dividend, which currently yields around 7%. Meanwhile, Enbridge has lots of visible growth coming down the pipeline, which, along with its dividend, should give it the fuel to produce low-double-digit annualized total returns in the coming years. These features make Enbridge "a first-choice investment opportunity," according to CEO Greg Ebel in its second-quarter earnings release.

Built like a rock

Enbridge recently reported solid second-quarter results. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 8% (setting a new record for that period), while its cash flow per share increased by 3%.

However, even more important was the significant progress the company made on its strategic priorities in the quarter. Enbridge closed the second of three natural gas utility acquisitions in the period, buying Questar from Dominion for $4.3 billion. The company also filed a settlement with a regulator, creating a clear path to close the third and final Dominion utility acquisition in the third quarter (PSNC), and it completed all the financing needed for those deals. Those utility acquisitions will further enhance the stability and diversification of its cash flows.

Even with pre-funding its acquisitions, Enbridge ended the second quarter with a 4.7 times leverage ratio , well within its 4.5 times to 5.0 times target range. The company's credit rating agencies put their stamps of approval on its balance sheet during the quarter, reinforcing "our long-held view that our balance sheet is strong," stated Ebel. Meanwhile, leverage will gradually decline as the company receives the full benefit from its utility acquisitions, giving it even more financial flexibility.

Combined with its conservative dividend payout ratio (60%-70%), Enbridge has billions of dollars of annual investment capacity. It can self-fund the equity needed to expand with retained cash flow after paying dividends while using its ample balance sheet capacity to finance the balance of its future growth capital needs.

These factors put Enbridge's high-yielding dividend on an extremely firm foundation. They all but ensure the company can maintain its pristine record of paying dividends. The company has paid them for over 69 years while increasing the payment level annually for 29 consecutive years.

More growth ahead

The utility acquisitions will provide an earnings boost in 2024 and beyond. Enbridge increased its full-year outlook for adjusted EBITDA in 2024 while maintaining its cash flow per share forecast, as the impact of pre-funding the deals will offset the incremental cash flow. They'll provide a more meaningful boost next year as the company captures the full effect of their incremental earnings and cash flows. Meanwhile, they'll supply growth in future years as Enbridge invests in expanding its operations.

Those utility expansions are part of the 24 billion Canadian dollars ($17.3 billion) of secured commercial projects Enbridge has in its backlog. It recently added several more projects, enhancing its long-term growth outlook. Those new additions include:

• Blackcomb Pipeline : Enbridge and its partners are building a 2.5 billion cubic feet per day pipeline to increase gas transportation capacity in South Texas.
• Gray Oak Pipeline : The company is moving forward with a 120,000-barrel-per-day expansion of this oil pipeline .
• Orange Grove Solar : Enbridge is investing $250 million to build the 130-megawatt solar farm. AT&T agreed to buy 100% of the power it will produce.

Enbridge has ample financial capacity to fund its secured capital project backlog with room to spare. Because of that, it can continue approving new projects and making bolt-on acquisitions as opportunities arise. The company estimates these investments will help grow its cash flow per share at a 3% to 5% annual pace in the coming years.

A first-rate investment opportunity

Enbridge's low-risk business model supports its dividend and expansion plan. Because of that, it offers a rock-solid, 7%-yielding income stream and should be able to grow its cash flow by 3% to 5% annually (supporting a similar dividend growth rate). Add it up, and Enbridge has the visibility to deliver 10% to 12% annualized total returns in the coming years. That's an excellent return from such a low-risk stock, making it stand out as a top long-term investment opportunity.

Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy .