Could Enerflex Become the Next Enbridge?

Enbridge is a high-dividend TSX stock that has created massive wealth for shareholders. Here’s one TSX stock that can outpace Enbridge.

| More on:
oil and natural gas

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Enbridge (TSX:ENB) is a large-cap energy infrastructure giant that has created massive wealth for shareholders. In the last 20 years, Enbridge has returned close to 870% to shareholders after adjusting for dividends. Comparatively, the TSX index has returned “just” 404% since May 2004.

Despite its outsized gains, Enbridge offers a tasty dividend yield of 7.3%, given it pays shareholders an annual dividend of $3.66 per share. Moreover, Enbridge has raised its dividends by 10% annually on average in the last 29 years, enhancing the yield at cost significantly.

Created with Highcharts 11.4.3Enbridge + Enerflex PriceZoom1M3M6MYTD1Y5Y10YALL23 May 202321 May 2024Zoom ▾Jul '23Sep '23Nov '23Jan '24Mar '24May '240www.fool.ca

Enbridge stock will remain a top investment choice for income-seeking investors in 2024 due to its resilient and well-diversified cash flows.

Is Enbridge stock a good buy right now?

Despite an uncertain macro environment, Enbridge reported adjusted earnings of $2 billion or $0.92 per share in the first quarter (Q1) of 2024, an increase of 8% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $5 billion, an increase of 11% compared to $4.5 billion in the year-ago period.

Enbridge reported operating cash flow of $3.2 billion and distributable cash flow of $3.5 billion. Given its outstanding share count, Enbridge paid shareholders quarterly dividends of $1.95 billion, indicating a payout ratio of 56%, providing the company with the flexibility to target acquisitions and lower debt.

In the last five years, Enbridge has paid $34 billion to shareholders via dividends and aims to increase the amount to $40 billion through 2028.

Is Enerflex stock undervalued?

As it will be difficult for Enbridge to replicate its historical gains, you can consider investing in Enerflex (TSX:EFX), a small-cap dividend-paying energy infrastructure company.

Valued at $881 million by market cap, Enerflex is a global provider of energy infrastructure and energy transition solutions. It deploys natural gas, low-carbon, and treated water solutions from modularized products and services to integrated custom solutions.

In Q1 of 2024, Enerflex reported revenue of US$638 million, up from US$610 million in the year-ago period. It attributed higher sales to its energy infrastructure product line, where Enerflex expanded the scope and term of an existing build-own-operate-maintain contract in the eastern hemisphere. The contract supports the expansion of the company’s treated water solutions business and increases its presence in Oman.

Enerflex’s engineered systems business ended Q1 with bookings of US$420 million, bringing the total backlog to US$1.3 billion and providing investors with strong visibility into future revenue generation and business activity. Additionally, Enerflex emphasized that US$1.6 billion of contracted revenue tied to its energy infrastructure assets will be recognized in the coming years.

Enerflex ended Q1 with an operating cash flow of US$101 million and a free cash flow of US$78 million, allowing it to pay shareholders a quarterly dividend of $0.025 per share. Comparatively, it paid less than US$3.5 million to shareholders via dividends, indicating a payout ratio of less than 5%.

Enerflex used the excess cash to repay long-term debt totaling US$72 million as it ended Q1 with a net debt of $743 million, including $110 million in cash. Enerflex stated its net-debt-to-EBITDA ratio was 2.2 times, much lower than the 2.9 times in the year-ago quarter.

Enerflex stock is priced at 25 times forward earnings, which might seem expensive for an energy company. However, it’s on track to more than double its adjusted earnings from $0.28 per share in 2024 to $0.65 per share in 2025.

Analysts remain bullish and expect the TSX dividend stock to surge almost 50% in the next 12 months.

Should you invest $1,000 in Enerflex Ltd. right now?

Before you buy stock in Enerflex Ltd., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Enerflex Ltd. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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 Aditya Raghunath has positions in Enbridge. The Motley Fool recommends Enbridge and Enerflex. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

3 colorful arrows racing straight up on a black background.
Dividend Stocks

These Are the Highest-Yielding Stocks on the TSX Right Now 

Let’s look at some of the highest-yielding stocks on the TSX right now and see how you can make the…

Read more »

rail train
Dividend Stocks

Canadian National Railway: Buy, Sell, or Hold in 2025?

CN is down more than 20% in the past year. Is CNR stock now oversold?

Read more »

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

5 Stocks for Canadian Dividend Investors

Given their solid underlying businesses, reliable cash flows, and healthy growth prospects, these five Canadian stocks are excellent buys.

Read more »

Woman in private jet airplane
Dividend Stocks

2 Bargain Stocks to Buy While They’re Still Cheap

Long-term investors looking for bargains should take a closer look at these two solid dividend stocks.

Read more »

analyze data
Dividend Stocks

Take Full Advantage of Your TFSA With These 5 Dividend Stars

These TSX stocks pay good dividends that should continue to grow.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA: Invest $25,000 in This TSX Stock for $1,966 in Annual Passive Income

Whitecap Resources is a TSX dividend stock that offers you a tasty dividend yield in 2025, making it attractive to…

Read more »

investor looks at volatility chart
Dividend Stocks

Sell-Off Survivor: Why This Canadian Stock Is a Must-Own in Volatile Times

There are few sectors that offer the security as well as growth as infrastructure, and this global powerhouse is a…

Read more »

A child pretends to blast off into space.
Dividend Stocks

Trump Tariffs: 1 TSX Stock That Could Take a Huge Hit

Cargoget (TSX:CJT) is vulnerable to Trump tariffs due to extensive involvement in cross-border trade.

Read more »