Enbridge's Long-Term Take-Or-Pay Contracts: What Investors Should Know

Enbridge Inc. ENB is a leading midstream energy company. On its second-quarter 2025 earnings call, the company stated that it generates as high as 98% of earnings before interest, tax, depreciation and amortization (EBITDA) from midstream assets that are backed by long-term take-or-pay contracts or regulated returns.  

By a take-or-pay agreement, the shippers have agreed to pay fees even if they do not use the assets’ capacity. This provides ENB with the safety net to generate stable cash flows for shareholders, irrespective of the business environment. In other words, Enbridge’s business model is not vulnerable to volume and price risks.

Enbridge thus has a highly predictable cash flow business model. In fact, with rock-solid long-term contracts with predictable earnings, the midstream energy giant’s creditworthiness remains high. Thus, ENB will be capable of investing in growth capital projects at favorable terms, which will generate additional cash flows.

EPD & KMI Also Generate Stable Cash Flows

Enterprise Products Partners LP EPD and Kinder Morgan Inc. KMI are also leading midstream energy majors like ENB.

Enterprise Products' pipeline network spans more than 50,000 miles, transporting oil, natural gas and other commodities. The partnership also has more than 300 million barrels of liquid storage capacity, thereby generating stable cash flows. Importantly, EPD’s business model is inflation-protected because almost 90% of its long-term contracts include a provision for increasing fees when the business environment becomes inflationary.

Having a natural gas pipeline network spanning 66,000 miles, Kinder Morgan is responsible for transporting roughly 40% of the natural gas produced in the United States. Thus, with a strong midstream presence, KMI secures shareholders’ cash flows.

ENB’s Price Performance, Valuation & Estimates

Shares of ENB have gained 28.8% over the past year compared with the 26.1% improvement of the industry.

From a valuation standpoint, ENB trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 15.65X. This is above the broader industry average of 14.08X.

The Zacks Consensus Estimate for ENB’s 2025 earnings hasn’t seen any revisions over the past seven days.

Enbridge currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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