North America’s largest pipeline operator Enbridge (TSX: ENB)(NYSE: ENB) is in the grip of some negative news. Its pipeline expansion projects are delayed, and investors are staying away from energy stocks amid global uncertainties.
That situation has hit Enbridge stock hard during the past quarter. Its stock has fallen about 6% when the S&P/TSX Composite Index has gained more than 2%.
Enbridge stock came under pressure in June after the Minnesota Court of Appeals ruled that the decision by the Minnesota Public Utilities Commission, a state regulator that approved the Line 3 project last year, wasn’t correct. The decision was a big setback to Enbridge’s efforts to quickly finish this project, which has the potential to ease the congestion in the Canadian pipeline system.
Amid the pipeline uncertainty, the government of Alberta said last month that it was extending mandatory curtailments on crude production by an extra year through 2020.
Alberta’s previous New Democratic Party government-imposed production cuts in January as part of its push to reduce a supply glut of oil in storage that built up owing to congested pipelines. The curtailments have reduced a massive discount on Canadian heavy crude, but investor confidence remains shaken, and energy stocks are trading around historic lows.
Enbridge stock’s low valuation
Enbridge stock, for example, is trading close to lowest forward price-to-earnings multiple in the five years, while its annual dividend yield is getting close to 7%.
But this negative environment for Canadian energy stocks offers a great opportunity for long-term investors to buy top-quality stocks, which regularly grow their dividends and are positioned to come back quickly once the hurdles are out of the way.
In its latest earnings report, Enbridge reported a second-quarter profit of $1.349 billion, or $0.67 per share, compared to $1.094 billion, or $0.65 per share, a year ago. During the quarter, its cash position further strengthened, as it moved a large quantities of energy products.
Another reason to keep a top dividend stock like Enbridge in your portfolio is that when interest rates fall, these stocks become more attractive. Given the increasing risks to global growth following the U.S.-China trade dispute, both Bank of Canada and the U.S. Federal Reserve are forecast to cuts rates.
Enbridge is a good defensive stock to hold on to when the economic headwinds are gathering pace. The company pays a $0.73-a-share quarterly dividend. The payout has been expected to rise 10% per year.
Due to Enbridge’s central position in North America’s energy supply chain, it’s hard to imagine the company won’t be able to finish its development projects, including the Line 3 expansion. Over the past one year, Enbridge has also accelerated its restructuring plan and is selling assets, focusing on its core strengths, and paying down its debt. These measures are likely to benefit long-term investors whose aim is to earn steadily growing income.
