Enbridge (TSX:ENB): A Top Dividend Stock Yielding Over 6% for 2020 and Beyond

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is attractively valued. Buy today to lock in a 6.6% yield.

| More on:

Leading North American midstream and energy infrastructure company Enbridge (TSX:ENB)(NYSE:ENB) continues to attract considerable negative attention; it is the most shorted stock on the TSX. Most of the short interest surrounding Enbridge appears driven by a combination of macro issues and company-specific concerns.

What are the risks?

The macro risks include a looming U.S. recession, growing trade uncertainty, and a weaker outlook for oil as well as natural gas. There are also concerns over Enbridge’s heavily levered balance sheet, increased regulation, and the company’s ability to reduce costs and grow earnings. Regulatory issues relating to the multi-billion-dollar Line 3 Replacement program, which forced Enbridge to reschedule the planned in-service date for the asset to a year later, further magnified the concerns surrounding the stock.

Solid results

Those fears appear grossly overbaked and unwarranted with Enbridge delivering on its strategy to improve its operations and unlock value for investors as underscored by its solid second-quarter 2019 results. While adjusted EBITDA of $3.2 billion was essentially flat compared to a year earlier, distributable cash flow (DCF) shot up by an impressive 24% year over year to $2.3 billion, and earnings per share of $.86 was a notable 37% higher than a year earlier. This solid performance saw Enbridge confirm its 2019 full-year guidance, including DCF of $4.30-$4.60 per share.

The improved financial results can be attributed to higher oil and natural gas transportation volumes as well as the implementation of a range of initiatives aimed at reducing costs.

Demand for Enbridge’s services and critical transportation as well as storage infrastructure remains strong. There is considerable existing demand in Canada for the utilization of Enbridge’s pipeline network because of transportation constraints and a lack of pipeline exit capacity.

The transportation constraints are that severe domestic oil inventories to surged to record highs towards the end of 2018, causing the Canadian heavy crude benchmark price Western Canadian Select (WCS) to collapsing to record lows, despite firmer oil. This forced the government of Alberta to intervene and establish mandatory production cuts to drain the local oil glut and support higher prices.

Edmonton recently announced that those cuts had been extended to the end of 2020, illustrating that the lack of transportation capacity has yet to be effectively addressed. This highlights the crucial role filled by Enbridge’s pipeline network, which is responsible for transporting 25% of all crude and 20% of natural gas produced in North America, for the energy patch.

Enbridge’s push to expand its infrastructure including $16 billion of projects under development, which are expected to enter service between the start of 2020 and end of 2023, will ensure that transportation volumes and hence earnings will keep growing.

The heavily regulated nature of the midstream industry, along with other steep barriers to entry, endows Enbridge with a wide economic moat that protects its earnings and will shield it from an economic downturn.

Enbridge is also focused on reducing debt, which, by the end of the second quarter 2019, was in the target range of 4.5-5 times EBITDA. A combination of lower debt and the Fed’s latest rate cut will boost Enbridge’s profitability by reducing financing expenses while bolstering its balance sheet flexibility.

Those attributes have supported Enbridge’s long history of dividend hikes where it has increased that payment for the last 24 years straight to yield a very juicy 6.6%. The company plans to continue regularly increasing its dividend at a compound annual growth rate (CAGR) of 10% up until 2020.

Foolish takeaway

For these reasons, Enbridge is an ideal stock for investors seeking to boost income and growth, with it poised to deliver substantial value for shareholders over the foreseeable future. Many of the risks, which see Enbridge ranked as the most shorted stock on the TSX, appear overbaked. Now that the stock is down by 7% over the last year, Enbridge appears attractively valued, making now the time to buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian flag
Dividend Stocks

This Canadian Dividend Stock Pays at 11.2%

A high dividend yield is awesome, sure, but is this dividend stock still a great buy with that 11.2% yield,…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

3 Blue-Chip Stocks So Safe Canadians Can Hold Them Until They Die

Canadian National Railway (TSX:CNR) is a stock worth owning for life.

Read more »

stock research, analyze data
Dividend Stocks

14.7% Dividend Yield? Buy Up This Passive-Income Stock in Bulk!

That dividend yield is high, but it still comes with some strong reasons to consider the stock outside of a…

Read more »

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $100 Can Buy on the TSX Today

Dividend ETFs like BMO Canadian Dividend ETF (TSX:ZDV) can add passive income to your portfolio.

Read more »

space ship model takes off
Dividend Stocks

Is WSP Global Stock a Buy for its 0.6% Dividend Yield?

Here's why investors should look beyond WSP Global stock's tiny dividend yield.

Read more »

hand stacking money coins
Dividend Stocks

6 Percent Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

Are you looking for a TSX passive-income titan? Here's one stock that pays handsomely that you will regret not buying…

Read more »

Dividend Stocks

Top Canadian Stocks to Buy Now and Hold for a Lifetime in a TFSA

If you want stability in your long-term TFSA, then these four are choices you can pick up again and again.

Read more »