Enbridge Inc. (TSX:ENB)(NYSE:ENB) stock has paid a dividend for more than 60 years and has paid an increasing dividend for more than 20 years. After Enbridge merged with Spectra Energy Corp. and became the largest energy infrastructure company in North America, some investors worried about Enbridge’s debt levels. At the end of March, the company had about $61.2 billion of long-term debt.
A more simplified corporate structure
In May, Enbridge proposed to combine its outstanding sponsored vehicle equity securities, including Enbridge Energy Partners, L.P. (NYSE:EEP), Spectra Energy Partners, LP. (NYSE:SEP), and Enbridge Income Fund Holdings Inc. (TSX:ENF), into one publicly-traded equity security. If this materializes, Enbridge’s credit profile, cash flow quality, and the safety of its dividend should improve.
Minnesota Public Utilities Commission approved Line 3 replacement project
The Line 3 replacement project is a key investment for Enbridge. As noted in the first quarter results press release, “The $9 billion … project will enhance the safety and reliability of the Enbridge liquids Mainline System, provide incremental export capacity to Western Canadian producers, and increase security of supply for key refining markets along the Mainline system as well as to markets further downstream.”
At the end of June, Minnesota Public Utilities Commission gave the green light for the project, which helped send Enbridge stock about 11% higher. Yet fellow Fool writer, Joey Frenette, thinks Enbridge stock has more upside.
Yesterday, Enbridge announced that it was selling $4.31 billion worth of Canadian natural gas gathering and processing assets, including 19 natural gas processing plants and liquids handling facilities, which have operating capacity of 3.3 billion cubic feet per day and 3,550 km of natural gas gathering pipelines.
This year, the management has announced to sell about $7.5 billion of assets. Altogether, they help give more financial flexibility for the company, whether the proceeds will be used to pay down debt or grow the business.
Enbridge noted that it will keep its regulated natural gas transmission assets, which include the West Coast transmission system in British Columbia and the Alliance pipeline that carries natural gas from western Canada to the Chicago market. This is a more predictable business than the gas gathering and processing business that Enbridge is selling.
With the above developments, it seems the storm has passed for Enbridge stock, and so shareholders can breathe a sigh of relief. The stock has risen about 23% from a low of roughly $38 per share in April to about $47 per share at the time of writing. However, Enbridge stock is still reasonably valued and offers a fat 5.7% yield. Additionally, management aims to increase the dividend by about 10% per year through 2020. Therefore, Enbridge should appeal to income-focused investors looking for above-average growth.
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 owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.