The recent pullback in the share price of Enbridge (TSX:ENB) has dividend investors wondering if this is a good opportunity to add ENB stock to their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
Enbridge overview
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure sector with a current market capitalization near $102 billion. The stock trades for close to $50 per share at the time of writing compared to the 12-month high around $59.50.
The latest dip has pushed dividend yield up to 7%. This is enticing for investors seeking reliable passive income. Enbridge increased the dividend in each of the past 28 years, so the payout should be safe and is likely to continue to increase in the 3% range annually over the next few years.
Enbridge is working on $17 billion in capital projects that should drive revenue higher and support cash flow required to maintain the distribution. The company is also large enough to make strategic acquisitions. This occurred in recent years with the US$3 billion purchase of an oil export terminal in Texas, the acquisition of a renewable energy developer in the United States, and a 30% stake in the Woodfibre liquified natural gas (LNG) development in British Columbia.
Management knows that the days of getting large oil pipeline projects approved and built are probably done. Growth will come from oil and natural gas exports and renewable energy in the coming years. This means, however, that the existing oil pipeline infrastructure should become more valuable. Enbridge moves about 30% of the oil produced in Canada and the United States. It also transports roughly 20% of the natural gas used by American homes and businesses. In addition, the company has natural gas utilities and a growing portfolio of renewable energy assets.
Enbridge recently concluded a new agreement with producers to ensure its core oil pipeline systems continues to operate near capacity.
Earnings
Enbridge reported solid first-quarter (Q1) 2023 results. Adjusted earnings came in at $1.7 billion, the same as in Q1 2022. Management confirmed guidance for annual earnings per share (EPS) growth of at least 4% through 2025 and distributable cash flow (DCF) growth of around 3% per year. Beyond 2025, the annual growth rate for EPS and DCF is expected to be 5%.
Risks
The latest dip in the share price is likely due to concerns that the company’s Line 5 pipeline could be forced to shut down in Wisconsin as a result of erosion risks caused by recent flooding. Michigan has also tried to get Line 5 shut down due to concerns the pipeline could rupture under a stretch of water where Lake Michigan meets Lake Huron. Enbridge and the Canadian government say Line 5 is critically important for both Canada and the United States. The pipeline moves feedstock crude oil to refineries in Michigan, Ohio, Pennsylvania, Ontario, and Quebec.
Should you buy Enbridge stock now?
Ongoing volatility should be expected. An order to temporarily shut Line 5 would likely send the stock price lower. However, the medium-term outlook for earnings and cash flow growth makes Enbridge an attractive pick today. If you have some cash to put to work in a portfolio focused on dividends, this stock deserves to be on your radar.
