The Motley Fool

Should You Buy Enbridge (TSX:ENB) Stock for the 6.8% Dividend Yield?

Income investors are turning to high-yield stocks to help boost the returns they get in their TFSA dividend funds.

The challenge with chasing above-average yield is that you also move up the risk ladder. As the share price falls and the yield goes higher, the market is often signalling an expectation for a cut to the payout.

If that happens, the yield you thought you were going to get on the initial investment disappears and the stock could continue to slide, providing a double hit.

Some companies, however, simply fall out of favour with investors, or go through challenging periods that could be industry specific. When the core business is solid and dividends can be comfortably maintained or even increased, investors can step in and collect a nice yield while waiting for sentiment to improve.

Let’s take a look at Enbridge (TSX:ENB)(NYSE:ENB) to see if it deserves to be in your portfolio.

Turnaround plan

Enbridge launched a turnaround plan in late 2017 that identified up to $10 billion in non-core assets to monetize amid a shift to focus the company on regulated businesses. Management found buyers for about $8 billion faster than expected, and the proceeds are being used to shore up the balance sheet and finance part of the $19 billion capital program.

Growth

Major pipeline developments face stiff political and public hurdles these days, but Enbridge is still able to find strategic tuck-in projects. For example, the company just announced $2 billion in new secured capital projects spread out across the asset base.

Enbridge is North America’s largest energy infrastructure firm and can drive growth through acquisitions as well as new developments. It spent $37 billion in 2017 to acquire Spectra Energy and has the financial clout to make additional deals that suit the current strategy.

Earnings

Enbridge reported solid results for Q2 2019. Adjusted earnings came in at $0.67 per share compared to $0.65 in the same period last year.

Distributable cash flow increased to $2 billion from $1.7 billion in Q2 2018.

The company generated strong operating results across many of the existing business units and the newly completed projects contributed added revenue. Debt reduction also helped by reducing interest expenses.

Dividends

Enbridge raised its dividend by 10% for 2019 and intends to hike it by that amount in 2020. Distributable cash flow is expected to increase by 5-7% over the medium term, so dividends should grow in that range beyond next year.

The current payout provides a yield of 6.8%.

Should you buy Enbridge?

At the time of writing, the stock trades at $43.50 per share compared to the 2015 high above $65, so there is attractive upside potential.

Enbridge continues to deliver solid results, and investors who buy now can pick up a great dividend while they wait for the stock to recover.

Forget Apple! Buy This TSX Stock Instead…

There’s something crucial you need to know about Apple’s stock today, especially if you already own it, know someone who does, or have even thought about buying it.

This revolutionary new technology involved in “Project Titan” should make any investor’s ears perk up.

But you may want to consider investing in a TSX-traded company that’s poised to have a drastically larger role in this new tech, and yet is less than 1% the size of Apple.

Discover why we’re especially excited about this tech opportunity for Canadian investors like yourself.

Click here to learn more!

The Motley Fool owns shares of Enbridge. Fool contributor Andrew Walker owns shares of Enbridge. 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.