Enbridge (TSX:ENB)(NYSE:ENB) is a tough stock to get behind unless you have a truly long-term mindset. Over the near term, there are few, if any, meaningful catalysts that’ll propel the stock back towards its highs. But if you’re looking for a terrific risk/reward trade-off and are willing to hang on to an investment for at least five years, it’s tough to do better than Enbridge stock at current valuations.
The 6.3% dividend yield is undoubtedly a main attraction to the stock, and while the renewal of management’s annual 10% dividend-growth promise to investors may be subject to uncertainty come the early 2020s, the pipeline of cash flow-generative growth projects (sorry for the pun) on the horizon and the shareholder-friendly nature of management bodes well for the magnitude of dividend growth to be had over the long term.
The much-anticipated Line 3 Replacement is seen as a major source of relief for Enbridge, and while delays are discouraging, I think long-term thinkers should ignore the excessive pessimism regarding the matter. As far as I’m concerned, delays simply allow long-term investors to get a better price courtesy of impatient investors.
More delays mean more patience needed for investors
Last month, the Minnesota Court of Appeals reversed its regulatory approval of the Line 3 project’s environmental review over concerns relating to a lake spill risk. At this juncture, the Line 3 project may be pushed further out, possibly to the latter part of 2021, and although investors are no strangers to Line 3 delays, I believe that the now lower price of shares and the slightly higher dividend yield more than make up for the extra regulatory hurdle that was thought to have been passed previously.
Despite the Line 3 delay, I do not believe management will be going back on their promise of 10% per year in dividend hikes next year. Moreover, should the Line 3 Replacement come online in mid to late 2021, I think management will renew its 10% annual dividend-growth promise to investors once again, as the company finally reaps the rewards from the continuously delayed Line 3 Replacement.
If you’re in it for the dividend and above-average dividend growth over the long haul, Enbridge is still a terrific bet in spite of the delays. Buy the stock today and have patience, and you’ll likely be rewarded with dividends and dividend hikes as well as potentially massive capital gains that could be in the cards over the next few years.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.