Buy Enbridge Stock (TSX:ENB) Now Before a Market Crash

Enbridge (TSX:ENB)(NYSE:ENB) has all the makings of a stock that’s ready to break out in 2021 – here’s why.

| More on:

In the energy sector, Enbridge (TSX:ENB)(NYSE:ENB) continues to be my highest conviction TSX pick. This company is built to be recession-proof, and this stock is priced well to manage another crisis like the one we experienced in 2020.

Here’s why I think Enbridge is a good buy today if you think a market crash could be on the horizon.

Tons of value built into Enbridge’s stock price right now

Much this stock price appreciation involves a growth to value rotation that’s just beginning. This rotation is evident given how we’ve seen stock prices in certain sectors move of late. For example, Enbridge’s stock price has been on a tear since the beginning of the year. This is a stock that is up around 10% over just a couple of weeks.

If this rotation continues as I expect it will, Enbridge could outperform its peers for a number of reasons. Among them, high-quality counterparty contracts resulting in cash flow security is top of my list. Not far down would definitely be the potential for outsized growth with new pipeline expansion projects coming online soon.

Enbridge is a defensive, value-oriented pick in a market that has run wild in terms of valuation of late. I think this is a stock that is trading at least 25% below its fair value. Additionally, given its value profile right now, if capital flows change, Enbridge is an easy target for this capital. The company’s utility-like operations provide sufficient cash flow safety to support a long-term growth thesis both on the capital appreciation side as well as for dividend growth.

Is Enbridge’s dividend sustainable?

Furthermore, as we see investors price in rock bottom interest rates for much longer, companies like Enbridge look really cheap right now. This is a company with a dividend yield of 7.4% right now. That’s incredibly high – so high that some might wonder about its safety. That said, this company’s dividend is actually one of the safest in the industry today.

A variety of headwinds related to the energy sector are being priced into this stock right now, pushing its yield to abnormally high levels. Namely, issues with some of the company’s pipeline expansion projects have clogged up the headlines and detracted from the investment thesis in this stock.

Should we see these headwinds dissipate this year — which is quite likely — we could see Enbridge’s yield drop. Accordingly, the company’s share price could see some very nice appreciation after a rocky 2020.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »