Concerns about Enbridge's dividend are overblown

The wide-moat company is on course to boost its dividend and offers hefty upside.

Joe Gemino 26 June, 2018 | 5:00PM

 Enbridge's (ENB) stock hasn't fared well over the past six months, down about 13% year to date. Investors are skeptical of the company's aggressive plan for 10% annual dividend growth throughout 2019 and 2020 and fear that Enbridge might be biting off more than it can chew, reminiscent of Kinder Morgan's 2015 dividend cut. Accordingly, the stock has sold off throughout the year on any news that may negatively affect the company, most recently a Minnesota judge recommending that the Line 3 replacement project follow the pipeline's existing route.

Enbridge sports a near-term $22 billion in commercially secured capital projects in its growth portfolio, which is highlighted by the Line 3 replacement project. We think the project will receive approval to use its preferred route, as it offers US$3.5 billion in economic benefits and limits its impact on Minnesota's environment and tribal communities. Once placed into service, we expect the Line 3 replacement project coupled with various natural gas growth projects to generate $4 billion in incremental EBITDA, which will support the dividend growth.

While Enbridge offers an attractive 6.4% yield, it's more than a just a dividend stock; the wide-moat company remains our top pick in the energy sector. We still see more than 50% upside in the stock and think the time is right for long-term investors to capitalize on this while collecting a steady stream of growing income.

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Joe Gemino

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

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