Should Investors Buy Enbridge Inc.?

Because of its wide moat, lucrative business model, and growing yield, I believe investors should consider buying Enbridge Inc. (TSX:ENB)(NYSE:ENB).

| More on:
The Motley Fool

There are three ways to get oil and natural gas around the country: rail, truck, and pipeline. Truck is inefficient and really should only be used for the last mile. Rail is sufficient, but has to compete with other goods that need to be transported. Pipeline, on the other hand, is a dedicated delivery mechanism that gets oil and natural gas from point A to point B. There are no other goods competing for this space.

This makes pipelines one of the most efficient means for the oil suppliers across Canada to get their oil to refineries and processing plants. Enbridge Inc. (TSX:ENB)(NYSE:ENB) is one of the most popular and largest pipeline companies in Canada. And all things considered, it might very well be one of the best companies that investors can own right now.

There are three reasons investors should like Enbridge.

First, it is virtually impossible for anyone else to come along and launch their own pipeline business. Consider how much political fighting there has been just to get Keystone XL launched. Imagine a new contender coming along and trying to launch hundreds of miles, if not thousands of miles, of pipe. It would never happen.

This means that Enbridge has a significant mote to work with. I like the companies that I invest in to have a defensive position. All too often, an older company gets disrupted by a smaller one. With Enbridge, that’s not as likely.

The second reason has to do with its business model. Its business is not directly tied to the cost of the commodity that it ships. While low oil prices could put some strain on Enbridge over the long term, in the short to mid term, I don’t expect that to occur. It charges a flat fee per barrel to transport the commodity.

The final reason has to do with its dividend. It really does pay a lucrative yield to its investors. Based on its current price, Enbridge yields a 3.72% dividend. Investors will receive $0.47 per quarter, which is pretty sweet. However, Enbridge is also expected to increase its dividend by approximately 8-10% every year until 2018. I believe in receiving a pay raise from my job, and investors should get a pay raise from the companies that they own.

Time to buy?

Enbridge is a growing company. It pays lucrative dividends and has a moat that is nearly impenetrable. One concern that has many value investors concerned is the fact that it trades at 217x its earnings. However, because the company is still growing, I think that buying this company now wouldn’t be a bad idea. And if oil prices do return to previous levels, I expect there will be an emotional reaction that sends Enbridge shares up.

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 Jacob Donnelly has no position in any stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »