Energy Transfer’s EPS Missed by 20%. Enbridge’s Profit Nearly Doubled. Here’s Why I’m Not Worried About Either Dividend Even Though Both Still Fell Short.

Energy Transfer's third-quarter earnings per unit fell about 20% short of analysts' expectations, while Enbridge reported a profit nearly double from a year ago. At first glance, one might believe one company had a strong quarter and the other did not. However, these headlines alone do not paint the full picture, particularly regarding the safety of their high-yielding dividends.

It is essential to look beyond reported earnings per share (EPS) when evaluating pipeline stocks, as they are capital-intensive and often record significant depreciation charges. A better measure of pipeline profitability is distributable cash flow (DCF), which represents the cash generated by these businesses that could be distributed to investors via dividends.

Enbridge's GAAP earnings for the third quarter were CA$0.59 per share ($0.42), nearly doubling from the previous year, but still below the CA$0.97 per share ($0.69) dividend payout. Enbridge's DCF, however, was CA$2.7 billion ($1.9 billion), nearly quadrupling from the prior year and providing a payout ratio of 79%. This ratio is even more comfortable at 66% based on the company's 2026 guidance range. Consequently, Enbridge's 6% yield is supported by a more solid foundation.

Similarly, Energy Transfer's GAAP earnings of $0.33 per unit missed the estimated $0.41 per unit, but its DCF was CA$2.5 billion, a 33% increase from the previous year. This DCF supported a more than 7% yield, with the company planning to invest about $5.5 billion into expansion projects in 2025 and another $7 billion in 2027. These investments should result in 3% to 5% annual dividend growth. Energy Transfer has raised its payout for 20 consecutive quarters, demonstrating its commitment to maintaining a strong dividend.

Investors should not be overly concerned about the high-yielding dividends of pipeline stocks such as Enbridge and Energy Transfer, as their cash flows indicate more sustainable payout foundations. These companies have demonstrated a consistent track record of increasing payouts over extended periods, offering investors confidence in their ability to maintain and grow their dividends.