Enbridge (TSX:ENB) is one of Canada’s most popular stocks and has certainly provided some of the best returns of dividend proxies int he market over the long term. Enbridge has returned more than 600% returns over the past 20 years, not including dividends. And it’s the company’s status as a leading dividend stock that has so many investors enamoured by this name.
With a dividend yield of nearly 8% a year and the amount of consistency this pipeline operator provides, it’s no wonder shares are trading near an all-time high. Let’s dive into why Enbridge remains a no-brainer dividend stock worth holding right now.
A TSX goliath
As one of the largest pipeline operators in North America, Enbridge has a relatively simple-to-understand business model. The company provides energy transportation services to large oil companies, mainly located in Western Canada. This heavy crude requires the appropriate track, which Enbridge has laid, with plans to expand certain portions of its network.
Over time, Enbridge should continue to benefit from higher energy prices and an increased focus on energy independence. In order for the North American energy complex to work, Enbridge is going to need to play a vital role. The company’s sky-high dividend yield and long-term capital-appreciation profile are all thanks to a steady stream of cash flows that have resulted from tens of billions of dollars of investment over the years.
Enbridge derives approximately 98% of its earnings from investment-grade customers with long-term inflation-linked contracts. In addition, the company’s stable and durable earnings have helped it to increase its cash flows every year by 10% on average over the past three decades. For investors looking for stability, this is certainly a top bond proxy in that regard.
Financial performance remains strong
Enbridge’s valuation has continued to hold steady this year in large part due to the company’s high debt load. While some of its debt will need to be refinanced down the road, Enbridge has done a good job of paying down its higher-interest debt first. And if interest rates do decline, it’s clear that Enbridge stock will be a key beneficiary.
That said, the company’s 2023 results showed strong earnings growth, from $2.6 billion the year prior to $5.8 billion last year. Adjusted earnings came in roughly flat due in part to higher interest rates. Thus, I think at least over the next few years, Enbrdige will be a stock many investors use to bet on the direction of interest rate moves.
Is Enbridge stock a buy?
It’s my view that Enbridge stock remains among the top bond proxies in the market right now. It’s hard to find an 8% yield of this quality, and that’s just the way it’s going to be for some time.
Yes, it’s possible to get short-term, risk-free bond income at around 5.3% right now. But for investors betting on a shifting monetary policy environment and seeking dividend equity exposure, Enbridge should remain a top pick.
