Enbridge: Stock of the Week

Just when you thought the dividends couldn’t go any higher.

Andrew Willis 16 October, 2023 | 1:38AM
Facebook Twitter LinkedIn

 

 

Watch more Stock of the Week episodes here.

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.

 

bulls 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.

bears 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. 

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Enbridge Inc48.25 CAD-0.70Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility