The Motley Fool

Enbridge Inc. (TSX:ENB) Stock Hits $50: How High Could it Go?

Enbridge (TSX:ENB)(NYSE:ENB) is up 17% in 2019, and investors who missed the rally are wondering if the recovery is just a head fake or the start of an extended move to the upside.

Let’s take a look at the current situation to see if the energy infrastructure giant deserves to be on your buy list right now.

Turnaround

It’s amazing how quickly sentiment can change in the equity markets. Last year, investors wanted nothing to do with go-to dividend stocks such as Enbridge amid concerns that rising interest rates would result in a flight of capital from these names in favour of no-risk alternatives.

As we now know, the Bank of Canada and the U.S. Federal Reserve have decided to put their rate-hike programs on hold, and some analysts are speculating the next moves could be cuts. The mood swing is having an impact on the equity markets, as investors shift back to top dividend plays that were arguably oversold.

Enbridge is also picking up support from investors who like what they see on the company’s turnaround efforts. Enbridge has decided to focus its investment and strategy on growing its portfolio of regulated businesses. In the wake of the $37 billion Spectra Energy acquisition, management identified $10 billion in non-core assets that could be monetized. In 2018, Enbridge found buyers for about $8 billion of that amount. The proceeds are earmarked for debt reduction and to help fund ongoing developments, including the Line 3 replacement project.

Enbridge made life easier for analysts last year by bringing four of its “sponsored vehicle” subsidiaries under one roof. The streamlined structure takes some of the difficulty out of evaluating the stock.

Dividends

Enbridge has a strong track record of dividend growth. The company raised the payout by 10% for 2019 and is expected to increase it by a similar amount in 2020. Beyond that time frame, Enbridge is targeting growth in distributable cash flow in the range of 5-7% per year. Investors should see the dividend increase at a similar rate.

The current payout provides a yield of 5.9%.

Should you buy?

Investors who had the foresight to buy Enbridge below $40 per share last year are already sitting on some nice gains, but those who step in today at $50 could also do well over the next couple of years, especially if the Line 3 project goes into service by the end of 2020 and interest rates stay at current levels.

If you have some cash on the sidelines, Enbridge offers a very attractive yield and a shot at additional gains. This was a $65 stock at one point in 2015, so 30% upside is possible.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

The Motley Fool owns shares of Enbridge. Fool contributor Andrew Walker owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from 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.