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Key Takeaways for Enbridge Stock:
- We see Enbridge’s acquisition of gas distribution utilities in the U.S. as primarily a defensive move to offset weakness in liquids.
- High dividends from Enbridge stock may continue to grow for the foreseeable future with the support of additional utilities revenue.
- Enbridge’s core businesses still control over 70% of Canada’s takeaway capacity, which helps protect over 80% of the company’s earnings against inflation.
Andrew Willis: For many Canadian investors and residents, Enbridge (ENB) is viewed as a utility or just a name associated with your gas bill. But now, we argue, this multinational pipeline and energy company is beginning to look more like a utility – and it’s probably good news for dividend investors.
Enbridge has indeed been getting more into the distribution business with the addition of 3 U.S. gas utilities. Sector strategist Stephen Ellis sees it as primarily a defensive bet to offset Enbridge’s liquids business, where there may be weaker results ahead.
Enbridge’s defensive move also helps defend its dividend in the long run, with a 20% boost to earnings to watch for in 2025 from those utilities. The forecasted earnings match up with 3% annual growth to its already-high dividend.
Enbridge Stock Dividends Could Continue to Flow
For investors, however, the potential high-yield future for Enbridge stock comes with some key risks and assumptions. Line 5 remains open, but Enbridge and Michigan are still in mediation. And we’re incorporating a successful replacement Line 3 pipeline.
Meanwhile, despite the uncertainty, Enbridge still controls over 70% of Canada’s takeaway oil capacity and maintains a link to highly complex U.S. refineries, which is unlikely to change any time soon. This helps protect over 80% of the company’s earnings against inflation, which these days almost makes it sound better than a defensive bet.
For Morningstar, I’m Andrew Willis.
Enbridge Bulls Say
- Enbridge is the liquids-focused version of gas-oriented Williams in terms of an attractive, highly regulated utility-like earnings profile.
- Enbridge offers a highly secure dividend that can increase 3% annually for the foreseeable future.
- The cancellation of Keystone XL puts Enbridge in a leading position to capture new organic pipeline expansions to serve the unmet need from producers.
Enbridge Bears Say
- Due to its size and profile, Enbridge is a lightning rod for ESG-related legal and stakeholder challenges across its assets, including Line 3, 5, and it even has a small stake in the troubled Dakota Access Pipeline.
- Enbridge's pipelines carry substantial amounts of oil produced in the Canadian oil sands, one of the least environmentally friendly sources of production.
- Enbridge has yet to build a moaty renewables business, risking its capital investment here over the next few years.
Editor's Note: All images are courtesy of Unsplash.com and AP Images.
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