Enbridge continues to be rare triple threat

Morningstar analyst Joe Gemino thinks the time is right for long-term investors to capitalize on the stock’s considerable upside while collecting a steady stream of growing income

Joe Gemino 17 December, 2018 | 6:00PM

Wide-moat  Enbridge (ENB) held its 2018 investor day and announced a 10% dividend increase, as expected. On an annualized basis, the 2019 dividend stands at $2.95 per share, representing a 6.8% yield. Many investors feared that Enbridge wouldn’t be able to meet its targeted increase, but we feel comfortable that the company can make its payments with its distributable cash flow coverage of 1.65 times the dividend payments.

Enbridge announced a 2019 outlook that included adjusted EBITDA of $13 billion and distributable cash flow of $8.9 billion. Both targets are in line with our expectations. The company continues to expect Line 3 to be placed into service in the back half of 2019, slightly ahead of our first-quarter 2020 expectations. Construction is 80% complete in Canada, and Enbridge expects it to be fully completed by July 2019. Enbridge is also continuing its negotiations on the Mainline tolling agreement but did not give a detailed update due to ongoing discussions with shippers. The existing agreement expires in 2021, but Enbridge is using the current uncertainty associated with future egress to lock in future cash flows on the Mainline.

We are maintaining our $62 fair value estimate and wide moat rating. Our long-term thesis is intact, and we see tremendous upside in the stock. We expect Enbridge to easily meet its 10% average annual dividend growth target through 2020 while maintaining healthy distributable cash flow. We consider Enbridge a rare triple threat, boasting a wide moat, an attractive 6.8% dividend yield, and a cheap valuation. We think the time is right for long-term investors to capitalize on the stock’s considerable upside while collecting a steady stream of growing income.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Enbridge Inc40.21 CAD-0.84

About Author

Joe Gemino

Joe Gemino  Joe Gemino, CPA, is an equity analyst for Morningstar covering Canadian oil and Gas companies.

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