Is Enbridge Inc. a Bargain Dividend Stock Today?

Should you buy Enbridge Inc. (TSX:ENB)(NYSE:ENB) for growing income today? What kind of returns can you expect?

| More on:
The Motley Fool

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is expected to merge with Spectra Energy Corp. (NYSE:SE) and become the largest energy infrastructure company in North America. It will have an enterprise value of about $165 billion.

The combined company

The combined company will have an infrastructure asset base, which covers key supply basins and demand markets in North America.

The larger scale, increased diversity, and improved financial flexibility will boost Enbridge’s financial strength and propel the company to the next level.

Specifically, the combined company’s portfolio will consist of 55,200 km of gas pipelines, 415 billion cubic feet (Bcf) of natural gas storage, 28,166 km of liquids pipelines, 11.4 Bcf per day of natural gas processing capacity, 3.5 million retail gas customers, and 2,200 MW of net renewable energy generation.

Additionally, there will be synergy opportunities primarily from general operations and admin cost savings. Annual synergies of $540 million are expected to be realized by the end of 2018.


The merger will be a stock-for-stock transaction, such that about 57% of the combined company will be owned by Enbridge shareholders and about 43% will be owned by Spectra Energy shareholders after the close.

Dividend and its growth

Enbridge has been returning cash to shareholders in the form of a growing dividend for 21 consecutive years. In the last two decades, it has increased its dividend at a compound annual growth rate of 10.6%, and it doesn’t look like it will be slowing down.

The combined company will have $74 billion of current and potential projects. Management expects these to help deliver dividend growth of 10-12% through 2024, including a dividend hike that’s expected after the close.

This hike will boost the dividend to an annual payout of about $2.43 per share and translate to a generous forward yield.

Is Enbridge a bargain dividend investment today?

Investors are in luck. Enbridge shares have pulled back nearly to the level before the huge rise from the announcement of the merger in early September 2016.

As a result, with the expected dividend hike after the close, the shares offer a juicy forward yield of nearly 4.5% at $54.20 per share.

It’s uncommon for Enbridge to yield north of 4.3%. With the shares offering a yield of 4.3% today and having a forward yield of 4.5%, Enbridge shares are attractive as an income investment.

If Enbridge continues on its growth path (which looks promising) and maintains its current multiple (which looks fairly valued), buyers today can expect long-term annualized returns of roughly 12-14%, barring the occurrence of a market crash.

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 Kay Ng has no position in any stocks mentioned. The Motley Fool owns shares of Spectra Energy. Spectra Energy is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Piggy bank next to a financial report
Dividend Stocks

TFSA Pension: 2 Top Stocks to Buy in a Self-Directed Retirement Fund

Canadian savers are using the TFSA to create their own retirement plan. Younger investors are building savings, while retirees are …

Read more »

Canadian Dollars
Dividend Stocks

Got $300? The 3 Best Passive-Income Stocks to Buy Now

A small but regular investment in top-quality dividend stocks could help you create a portfolio that will offer solid passive …

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

Top Stocks for Passive Income: How to Earn $366.75 Per Month Tax Free

Canadian pensioners and other investors focused on passive income have an opportunity to use their TFSA to hold top TSX …

Read more »

Payday ringed on a calendar
Dividend Stocks

2 Ways to Make $679 a Month in Passive Income

Passive income is defined as cash flow that’s enough to cover basic living expenses and is generated without any work. …

Read more »

Cogs turning against each other
Dividend Stocks

Boost Your Passive Income With These 3 Safe Dividend Stocks

With the inflation in the United States reaching a multi-decade high, Jerome Powell, the chairman of the Federal Reserve, has …

Read more »

money cash dividends
Dividend Stocks

3 Cheap Dividend Stocks That You Can Buy Under $30

The ongoing selloff provides long-term investors a chance to buy quality stocks at a lower price. Investors have seen a …

Read more »

Glass piggy bank
Dividend Stocks

RRSP Growth: 2 Top TSX Dividend Stocks to Own for Decades

The market pullback is giving RRSP investors a chance to buy some of Canada’s top dividend-growth stocks at reasonable prices. …

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

TFSA Retirees: This ETF Will Help You Generate $3,100 in Tax-Free Income Each Year

The TFSA, or Tax-Free Savings Account, is a registered account that was introduced back in 2009. Any withdrawals from the …

Read more »