Is Enbridge Inc. (TSX:ENB) a Buy-and-Forget Investment?

Despite a lagging stock price, Enbridge Inc. (TSX:ENB)(NYSE:ENB) remains one of the top dividend investments on the market — one which long-term investors should buy and forget.

| More on:

If someone told you that you could invest in a company that provides a stable, recurring source of revenue that is bound to grow in the coming years, and that same company also provides an appetizing dividend with a yield of 6%, would you consider it?

As an added bonus, let’s also assume that, for a number of different reasons, and despite having that recurring source of revenue bring in profits with each passing quarter, this company has seen its stock price drop over 15% in the past year.

If this sounds like an even remotely attractive investment for your portfolio, perhaps it’s time to take a serious look at Enbridge (TSX:ENB)(NYSE:ENB).

If there was an award for the underperformer of the year, my nomination would likely go to Enbridge.

Following the announcement of Enbridge’s acquisition of Spectra Energy in a mammoth $37 billion deal last year, Enbridge assumed a mountain of debt, which weighed heavily on the company, ultimately leading Enbridge to offload some assets to improve its financial standing and restructure itself to leverage changes made to U.S. tax law.

As a business, Enbridge’s lucrative business model is as close to a toll-booth operation as you can get, with energy companies lining up to use and pay for accessing Enbridge’s expansive pipeline network. With demand and prices of oil beginning to steadily rise again, usage of that pipeline network is only going to increase.

Enbridge’s often-mentioned and controversial Line 3 replacement project is another key point worthy of mention. The over 1,600 km pipeline replacement is set to span three provinces and go through the U.S., replacing existing pipeline built several decades ago with more advanced and higher capacity pipeline.

The project is one of the biggest infrastructure projects on record and the largest endeavour undertaken by Enbridge; once complete, the higher capacity will have a direct impact on Enbridge’s bottom line.

What about Enbridge’s dividend?

One of the main reasons that investors flock to Enbridge is the dividend, and that dividend remains a source of controversy with critics. The payout ratio, which is currently in excess of 170% would appear to most as being unsustainable over the long term.

But that payout ratio is not considering the expected synergies from the Spectra deal, the added revenue from the Line 3 completion, and the myriad of other projects that measure in excess of $20 billion that Enbridge has planned. I’m also not even taking into account the increase in demand for oil that has led prices to surge in the past few months.

If anything, it seems more likely that an increase, rather than a cut to the dividend, is what will transpire. Enbridge has already hiked its dividend by 10% this year and has stated further upticks will occur over the next few years, continuing a healthy trend of annual increases that already spans back over two decades.

Is Enbridge a buy?

Enbridge is not without risk, but the company is full of opportunity, particularly for those investors willing to buy and forget about the stock. From the 6% yield with a healthy growth rate to the lucrative toll-like business, Enbridge remains an intriguing option for investors looking for a long-term income stock with massive potential.

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 Demetris Afxentiou has no position in any stocks mentioned. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »