Prediction: You Won't Recognize Enbridge in 15 Years. Here's Why.
It's still in the energy logistics business, but the pipeline player knows it needs to begin preparing for the inevitable future.
By James Brumley
Most companies and industries evolve over time. They have to, in order to survive. One exception to this reality, of course, has been the energy sector. We still turn crude oil into gasoline and other fuels just as we have for decades.
The writing is on the proverbial wall, however. Although it's still many, many years down the road, the end of the oil industry as we know it is coming. That's obviously bad news for any name in the business.
One curious midstream company, however, is adapting to this change well before it arguably needs to. That's pipeline outfit Enbridge (ENB +1.15%).
In with the new
You may know it is a midstream company that owns and operates a network of more than 18,000 miles of natural gas and crude oil pipelines capable of moving 5.8 million barrels of liquid hydrocarbons across Canada and the United States every single day. That's huge. Indeed, Enbridge handles about 30% of the entire nation's crude oil.
Enbridge is doing something else seemingly out of character these days. Part of its portfolio of revenue-bearing assets will soon include a solar farm, a bunch of power-generating wind turbines, and more.
It's true! Although most of these projects aren't yet operational, the 600-megawatt (enough to power about 300,000 homes) Clear Fork Solar Project, currently under construction in Wilson County, Texas, is expected to go into service next year to support Facebook parent Meta Platforms' artificial intelligence data center infrastructure. In the meantime, the company's working on utility-scale wind farms in France and Texas, both of which should also become operational within the next few months. In the future, Enbridge will help Meta store energy for one of its data centers in Wyoming.
Preparing for the inevitable (even if distant) future
Don't misunderstand. Solar and wind still account for a tiny amount of Enbridge's total business, and this will be the case for a while. Under its current capital allocation plan, only a little over 10% of it is earmarked for renewables.
Still, for a company that's been strictly in the oil and gas pipeline business for decades now, this willingness and ability to pivot into completely unrelated ventures is a big deal.
These ventures will become a higher priority going forward, and perhaps sooner than you think. Goldman Sachs believes the world is still on track to reach "peak oil" -- the point in time at which consumption of crude oil finally stops growing and starts permanently declining -- in 2040. Enbridge is just wisely planning now for a change that the future is likely to force sooner than many players within the energy sector fully appreciate.
For income investors interested in this stock's sizable dividend yield, this paradigm shift into new recurring-revenue businesses will allow Enbridge to continue paying its dividend, which has been raised in each of the past 31 years.
From that perspective, Enbridge is a great income name to plug into, yielding 5.1%.