Enbridge Inc.: Is the Stock Price Attractive Today?

Enbridge Inc. (TSX:ENB)(NYSE:ENB) has taken a beating over the past year amid the broad pullback in the energy infrastructure sector.

Let’s take a look at the current situation to see if the company deserves to be on your radar right now.

Earnings

Enbridge reported solid numbers for 2017. Adjusted earnings came in at $2.98 billion compared to $2.08 billion in 2016. Distributable cash flow for the year rose to $5.6 billion from $3.7 billion in 2016.

Adjusted earnings growth was primarily due to the effect of higher revenue contributions from the company’s new natural gas, liquids, and utility assets.

Growth

Enbridge closed its $37 billion acquisition of Spectra Energy last year in a deal that created North America’s largest energy infrastructure company. Spectra added strategic gas assets to complement Enbridge’s large liquids operations and provided a nice boost to the development portfolio.

Enbridge brought $12 billion of commercially secured projects into service in 2017 and is working through an additional $22 billion in near-term developments that should be completed by the end of 2020. In 2018 alone, Enbridge expects to complete the US$1.3 billion NEXUS gas pipeline and the US$1.5 billion Valley Crossing pipeline, among others.

Beyond 2020, the company says it sees opportunity for new low-risk growth in the company’s core footprint.

Strategy shift

Enbridge announced plans in late 2017 to focus on its regulated pipeline and utility businesses. As a result, management identified $10 billion in non-core assets that could be sold over the next three years, with $3 billion potentially going on the block in 2018.

The company is determined to deleverage the balance sheet, with a plan to get the debt-to-EBITDA metric down to five times by the end of 2018 and remain below that level over the long term. The company has already made progress on this front.

Dividends

Enbridge has a strong track record of dividend growth, and that trend looks set to continue. The company raised the payout by 15% in 2017 and increased it by an additional 10% this year. Going forward, management expects revenue and cash flow growth from new assets to support annual dividend hikes of at least 10% through 2020.

Approval of any of the company’s longer-term developments could lead to an upward revision of the dividend-growth guidance.

At the time of writing, the stock provides a yield of 6.4%.

Should you buy?

Rising interest rates will push up borrowing costs, and that could hit cash flow available for distributions. In addition, the long-term growth outlook is somewhat uncertain in the current environment of strong opposition to large pipeline projects.

That said, the pullback in Enbridge’s stock price from $56 a year ago to the current level of $42 appears overdone.

If you have a buy-and-hold strategy and are looking for a solid dividend stock to add to your portfolio, it might be worthwhile to add Enbridge to your holdings while the stock remains out of favour.