Enbridge $4-Billion Gas Pipeline Expansion|Per-Share Payoff After 44.7 Million New Shares?

What Sunrise is and who it serves

Enbridge has started building Sunrise, a four-billion-dollar expansion of its natural gas pipeline system in British Columbia. In September, the same company sold about 44.7 million new shares. Whatever its new pipes earn will now be split among more owners. The expansion follows federal approval and will lift capacity on Enbridge's T-South system by 17 per cent.

Chief executive Greg Ebel called it "a shovel-ready, critical natural gas infrastructure project." Yet the shares sit about 16 per cent below their 2026 high, by one Motley Fool count. The reading here is this. Sunrise itself is best seen as one of Enbridge's lower-risk bets. The risk to each shareholder's slice lies elsewhere: in how the wider spending wave is being paid for. Four billion dollars is a large cheque.

But Enbridge is working through a capital program of about 41 billion dollars. Sunrise is roughly one-tenth of it. New project spending runs at around 10 billion dollars a year. On that measure, Sunrise equals about 40 per cent of one year's building. The money buys about 140 kilometres of new pipe, plus extra compression. Capacity rises by up to 300 million cubic feet of gas a day.

The work centres on southern B.C., and it also supports the U.S. Pacific Northwest. So Sunrise is a sizeable piece of a much larger program. Its value turns on who needs the extra space. The work is meant to help an array of customers, but one plant stands out. Woodfibre LNG is a liquefied natural gas plant under construction near Squamish, B.C. It hopes to start exporting to Asia by late 2027.

Woodfibre will draw gas out of the regional market. Sunrise is meant to help replace that gas for other buyers. And Enbridge has a seat at that table. It bought a 30 per cent stake in Woodfibre in 2022. The other 70 per cent is held by Pacific Energy, part of Singapore-based RGE. So Enbridge stands on both sides. It co-owns the plant drawing gas away, and it is building the pipe that fills the gap.

In September, federal Energy Minister Tim Hodgson said Woodfibre is keen to eventually ramp up its planned output. Analysts at Simply Wall St describe Sunrise as contracted gas capacity. They say regulated pipeline investments like it can underpin future earnings and dividend capacity. The same analysis names the catch.

Such projects bring more exposure to cost overruns, permitting challenges and shifts in energy policy. It adds that Sunrise does not change the near-term focus on heavy capital spending. Timing matters too. The plant whose gas Sunrise notably backfills is targeting exports by late 2027. So a large part of the payoff sits years out. That raises the stakes.

Sunrise links Enbridge's gas network to an export project it partly owns. But a long-dated payoff makes the cost of funding it today matter more for each share.

Where the pressure on each share comes from

A sturdy-business story meets an awkward number. A Motley Fool writer says Enbridge's business is performing well. Yet second-quarter earnings per share were 64 cents. A year earlier, they were one dollar. That is a drop of 36 per cent in what each share earned. Look one line higher. Operating income rose to 2.91 billion dollars. A year earlier it was 2.29 billion, so it grew about 27 per cent.

The damage came from below that line. Other income swung from a gain of about 1.37 billion dollars to a loss of 35 million. Interest expense rose as well. Profit for common shareholders fell by about 780 million dollars. The swing in other income alone was about 1.4 billion. So the pipes and utilities earned more. The per-share drop points to items outside core operations, and higher interest cost was one of them.

That matters for a company in building mode. One Motley Fool writer notes that higher rates could hurt any firm with considerable debt. So the question narrows. For shareholders, Sunrise's risk is less about whether the pipe runs. It is about what the money costs, measured per share. Enbridge's own financing choices show how it is paying for growth.

On September 14, it completed a three-billion-dollar sale of new common shares. It issued about 44.7 million shares. That works out to roughly 67 dollars each. In September, Enbridge also agreed to buy Tallgrass's crude oil business for 2.55 billion U.S. dollars in cash. Together with a Permian deal, acquisitions announced over a few weeks topped three billion U.S. dollars.

The deal includes 75 per cent of Pony Express, a crude line of about 460 thousand barrels a day into Cushing, Oklahoma. Enbridge estimated the price at 10 to 11 times forward earnings before interest, taxes, depreciation and amortization. That implies roughly 230 to 255 million U.S. dollars a year on that measure.

Enbridge says it believes U.S. crude will play a critical role in meeting global energy demand for decades. Those earnings arrive sooner than Sunrise's. They also arrive while the share count is larger. A second kind of sharing sits closer to Sunrise. In September, Enbridge agreed to form a joint venture with private-equity giants KKR and Apollo.

Its purpose is to fund a 2.7-billion-dollar expansion of the Westcoast natural gas pipeline system. Westcoast is the Enbridge affiliate that runs the B.C. transmission network. Put the pieces together. Enbridge is growing by sharing ownership twice: with new shareholders at the company level, and with outside partners at the asset level.

Total profit can rise while each existing share gets a thinner slice of that growth. That forces a revision. Sunrise can be a sound earner and still add little per share. It depends on how many new owners stand behind the spending.

What the price measures and what to watch

It is tempting to read the share slide as the market's verdict on all this spending. Simply Wall St did warn that capital intensity and execution risk may weigh on what investors will pay. A precedent points elsewhere. In July 2023, the Bank of Canada's policy rate peaked at 5 per cent, according to a Motley Fool Canada analysis. Enbridge then traded around 48 dollars, with a dividend yield near 7.4 per cent.

The policy rate is now 2.25 per cent, the same analysis says. The mechanism: if rates rise substantially, investors can demand higher yields from dividend stocks, pushing prices down. And rates are back in focus. U.S. markets are watching the timing of the next interest rate hike, ahead of a Federal Reserve meeting in late October. So the share price blends at least two forces: the rate climate and the spending plan.

On its own, it cannot tell you whether Sunrise pays. Other wild cards sit in the price too. One Motley Fool writer points to the Line 5 dispute and a leadership transition. The same writer argues higher-rate expectations are mostly baked in already. That narrows the test again. The fair scorecard for Sunrise and the new shares is cash per share, not the stock chart.

On that scorecard, the latest numbers are steady but thin. Distributable cash flow rose 1.8 per cent in the first half of the year. The payout ratio, the share of that cash paid out as dividends, is about 65 per cent. That sits inside Enbridge's target range of 60 to 70 per cent. Management targets roughly 5 per cent annual growth beyond 2026, according to a Motley Fool analysis.

Weigh it all, and the balance tilts one way. Sunrise is more likely to help cash per share over time than to hurt it. It is regulated, tied to a plant Enbridge co-owns, and a modest slice of the program. But the per-share gain will likely be smaller than the four-billion-dollar headline suggests. The growth is being split with new shareholders and partners.

Back to the opening tension: a big new pipe, and more owners to share it. The pipe looks like the sturdier part. The cost lies in the slicing. Enbridge reports third-quarter results before markets open on November 6. It is the first quarterly report since the new shares were issued. Watch the payout ratio against that 60-to-70 per cent target.

If it stays inside, per-share cash is keeping pace with the larger share count. If it climbs above 70 per cent, the slicing is outrunning the earning. The cost would fall on each existing share's dividend cushion, while new shareholders and partners already hold their piece.

Informational only, not investment advice. Figures and quotes come from the linked reports.