Enbridge Inc. Could Be Your Ticket to Financial Freedom

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is a dividend-growth king which is trading at an attractive price right now.

| More on:
oil, petroleum, refinery

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is still off 17.4% from its April 2015 high. The company offers a terrific yield and is well positioned to increase its dividend by a large amount over the next few years. The company recently merged with Spectra Energy Corp., making the combined company one of the largest energy infrastructure businesses in the world.

What can we expect from this merger?

The combined company owns over 55,200 km worth of pipelines and 415 billion cubic feet worth of natural gas storage. That’s a lot of pipeline! This builds up the moat even more; it would take a competitor many years and billions of dollars to get that much pipeline up and running. Enbridge will enjoy the feast of higher oil prices without the indigestion of low oil prices. It’s a safe play, even if oil prices tank like they did during the early part of last year.

What about synergy opportunities?

You can bet there are synergies that are unlocked by the merger. The experienced management team aims to improve operational efficiency, and this will be a huge driver of long-term free cash flow. It’s expected that $540 million worth of synergies will be unlocked by the conclusion of 2018. This cash will go right back into the pockets of shareholders through generous annual dividend increases.

Enbridge is a dividend-growth king that has been increasing its dividend by leaps and bounds over the last decade. Enbridge estimates that it will enjoy up to a 14% cash flow-per-share growth rate with a 10-12% dividend-growth rate through to 2019. The dividend still has a lot of room to run, and long-term investors will be rewarded greatly through dividend payments and capital gains, as the stock rebounds out of its slump.

The combined company will have $48 billion in expansion projects, and that’s going to be a driver of dividend growth for many years. It’s rare to see such a high dividend yield over 4% that is almost guaranteed to grow by 10% or more per year. If you’re an income investor, you should load up on shares and hold them while you collect the growing dividend, which is currently at 4.31%.

Valuation

The stock currently trades at a 28.2 price-to-earnings multiple with a 3.6 price-to-book multiple, both of which are lower than the company’s five-year historical average multiples of 65.6 and 4.5, respectively. The stock is trading at a huge discount to its intrinsic value right now, so I’d hop on the opportunity before shares start taking off.

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 Joey Frenette has no position in any stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

oil and gas pipeline
Energy Stocks

Top TSX Stocks to Consider as Natural Gas Price Races to US$10

Natural gas has been on a roll this year, and so have natural gas stocks!

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, May 26

TSX stocks may remain volatile today with the expected release of the U.S. GDP data and the ongoing Canadian bank…

Read more »

Filling up at the gas pumps.
Energy Stocks

Gas Prices Are Hitting Record Highs: 2 Stocks to Buy Now!

Buy Suncor Energy stock, Canada's integrated oil and gas giant that's benefitting immensely, as gasoline prices continue to soar.

Read more »

Business success with growing, rising charts and businessman in background
Energy Stocks

3 Hydrogen Stocks Set to Become Major Multi-Baggers

These three hydrogen stocks could certainly achieve multi-bagger status in the years to come after they overcome the present-day hurdles.

Read more »

energy oil gas
Energy Stocks

Surge Energy Stock Has Doubled in 2022 and There’s Still Steam Left

Canadian small-cap oil and gas stocks seem unstoppable this year!

Read more »

Oil pumps against sunset
Energy Stocks

Top 3 Energy Stocks for 2022

Energy stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on the top of your list.

Read more »

oil and natural gas
Energy Stocks

3 Reasons Oil Stocks Are Outperforming Tech This Year

Oil stocks like Baytex should be on your watch list.

Read more »

oil and gas pipeline
Energy Stocks

3 High-Yielding Energy Stocks to Buy Amid Rising Volatility

These three energy stocks can boost your passive income.

Read more »