The Motley Fool

This Top Dividend Stock Is Still Worth Buying Even After 16% Jump

Last year wasn’t very productive for dividend stocks. Quickly rising interest rates and the much better return on other segments of the market, such as high-growth stocks, made investing in dividend stocks less attractive.

But the start of the new year is bringing us a different story. Macroeconomic uncertainties, trade wars, and the fear of a sharp market correction have forced the U.S. Federal Reserve to move on the sidelines, and the message from the Bank of Canada isn’t much different.

These factors combined have brightened the outlook for some beaten-down dividend stocks. One such player is Enbridge Inc. (TSX:ENB)(NYSE:ENB), North America’s largest pipeline operator.

Its shares have surged 17% so far this year after plunging more than 14% in 2018. This sharp reversal no doubt reflects the improving environment for the defensive stocks, such as Enbridge, but I also see some company-specific developments at play here.

Enbridge is the company that’s been widely criticized for its huge debt obligations, which jumped after its acquisition of Spectra Energy in 2017. The pipeline operator last year spent to alley these concerns and  underwent a massive restructuring, selling some assets and re-align its focus to its core strengths.

Enbridge stock is out of bearish spell

The company’s recent communication with investors suggests that Enbridge is out of that phase and is well on track to grow its portfolio. During its investor day in December, Enbridge announced $1.8 billion in new investments, including the $265-million purchase of pipeline and terminal assets in northern Alberta from oil-sands producer Athabasca Oil Corp.

Enbridge will also spend US$600 million to buy a 22.75% interest in the Gray Oak Liquids Pipeline, which is under construction and expected to deliver light crude oil to Corpus Christi, Texas, starting in late 2019.

That project is expected to help supply an offshore shipping port in the Gulf of Mexico proposed by Enbridge with partners Kinder Morgan Inc. and Germany-based Oiltanking GmbH that could be operational by 2021, the company said.

Enbridge also committed about $800 million in spending on four natural gas transmission expansion projects in the U.S. that are to come into service in the 2020-23 time frame.

The company picked that day to announce that it will raise its dividend by 10% this year and forecasts another 10% hike for 2020.

Bottom line

Trading at $49.31 at writing, Enbridge stock is close to the analysts’ consensus 12-month price target of $52.88. I don’t expect too much gains for here, but the company is back on its growth path and it’s a good candidate to earn a juicy dividend yield, which is still close to 6%, offering much higher returns than GICs and government bonds.

Our #1 Stock to Buy in 2019 (and Beyond!)

When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.

Every investor knows that. But many struggle to identify the best opportunities.

Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.

Our top advisor Iain Butler has just identified his #1 stock to buy in 2019 (and beyond).

Click here to claim Iain’s new report, absolutely FREE!

Fool contributor Haris Anwar owns shares of Enbridge.  The Motley Fool owns shares of Kinder Morgan. Enbridge is a recommendation of Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.