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Could Investing $10,000 in Enbridge Make You a Millionaire?

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Image source: Getty Images

Written by Christopher Liew, CFA at The Motley Fool Canada

Stock investing or trading is a tangible way for regular folks to earn extra money and make millions. The key to building wealth in the stock market is not luck but time. Modest seed capital can transform into a significant amount over time through the power of compound interest.

The power of compound interest means generating “interest on interest” or, in the case of dividend stocks, dividends on the dividends by reinvesting the dividends depending on the payout frequency. However, compounding works best with a longer time horizon or if you start investing early.

Be a millionaire

Many dream of making $1 million from dividend stocks, although the goal is too fantastic if the starting investment is $10,000. However, it is feasible if the stock price is $1 and the dividend yield is 15.65% but constant. Assuming the time frame is 30 years, and the compound frequency is quarterly, the money will balloon to $1,000,311 (principal + dividends).

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A single stock like Enbridge (TSX:ENB) can bring you closer to the $1 million goal but with 10 tranches of $10,000, or $100,000. This top-tier energy stock trades at $48.93 per share and pays a 7.5% dividend. The yield is not constant, but the payouts grow yearly.

Enbridge is a Dividend Aristocrat owing to 29 consecutive years of dividend increases. In a 30-year investment window, a $100,012.92 investment (2,044 shares) today will grow to $922,3222 in 2054. The growth excludes the potential yearly dividend hikes.

Investment takeaways

Enbridge is the sixth-largest publicly listed company in Canada. The $104 billion energy infrastructure company is a compelling investment opportunity for long-term investors and retirees. Its business mix of four core franchises is a competitive advantage.

The diversified portfolio of liquids pipelines (50%), gas transmission (25%), gas distribution (22%), and renewable power (3%) combine to deliver highly reliable cash flows. Enbridge enhanced its transmission, gathering and distribution pipelines with the recent acquisition of three U.S. gas utilities from Dominion Energy. The Canadian pipeline operator is now North America’s largest natural gas utility franchise.

Greg Ebel, president and chief executive officer of Enbridge, said, “Adding natural gas utilities of this scale and quality, at a historically attractive multiple, is a once-in-a-generation opportunity. The assets we are acquiring have long, useful lives—and natural gas utilities are ‘must-have’ infrastructure for providing safe, reliable and affordable energy.”

Growth outlook

Given several commercially secured projects, Enbridge’s growth outlook is optimistic. Management will deploy capital expenditures of $6 billion to $7 billion annually from the $25 billion secured capital program. Because of the low-risk cash flow profile due to its utility-like business model, Enbridge expects to deliver and sustain attractive shareholder returns.

Diversification

Returning to wealth accumulation or the $1 million goal, avoid high-risk, high-reward stocks or speculative assets. Also, successful investing today requires mitigating market risks by investing in several stocks from different sectors.

Single stock investing is riskier, although Enbridge is an ideal anchor in a dividend stock portfolio. Some people who want to simplify the selection process invest in exchange-traded funds instead.

The post Could Investing $10,000 in Enbridge Make You a Millionaire? appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Dominion Energy and Enbridge. The Motley Fool has a disclosure policy.

2024