Canada’s largest energy company by market cap has quietly put together a decent year. Enbridge (TSX:ENB)(NYSE:ENB) stock has gained 10% thus far in 2019. The performance is quite impressive considering the TSX Capped Energy Index has gained only 3% in comparison
Over the past year, Enbridge’s outperformance is even more pronounced. It has managed to reward shareholders with positive capital appreciation (+4.25%), whereas its peers (TSX Capped Energy Index) have lost a whopping 25% of their value.
The good news for Enbridge shareholders is that they can expect this outperformance to continue.
Yesterday, amid a sea of red, Enbridge was one of the few stocks that closed in the green. Why did it outperform?
After numerous setbacks, Enbridge finally received some positive news in relation to its Line 3 replacement project. On Tuesday, the Minnesota Supreme Court of appeals declined to hear environmental and tribal challenges to the Line 3 project.
The ruling is a victory for Enbridge, as it means the Minnesota Public Utilities Commission will not have to consider any further issues and the project can move forward. It is one less obstacle to overcome.
Line 3 was initially pegged to enter service in late 2019; however, permitting delays have delayed the project until late 2020. As per Enbridge’s VP of liquids Pipelines Guy Jarvis, the ruling “allows the Minnesota Public Utilities Commission to move forth with the permitting process for the Line 3 replacement.”
The Line 3 replacement is an important growth project for the company. The new line would double current capacity and is expected to alleviate much of the current pipeline glut that current exists in Western Canada.
Yesterday, the company also announced it entered a strategic partnership with NextDecade for the development of the Rio Bravo Pipeline, which is attached to the Rio Grande LNG project. Although full details will be announced once the details of the deal are finalized, it is yet another impressive growth project.
Rio Bravo is expected to “transport 4.5 billion cubic feet per day of natural gas from the Agua Dulce area to Rio Grande LNG.”
These are the types of projects that set Enbridge apart from its peers.
In late 2019, Enbridge consolidated many of its sponsored vehicles. The end result is a more streamlined and less complicated entity. The company is trading at a cheap 17.81 times earnings, much lower than its historical ratio of 21.66 times earnings. It is also trading at a discount to its five-year price-to-book and enterprise value-to-EBITDA ratio.
Analysts expect high single-digit earnings growth and have an average price target of $53.65 per share. This implies 15% upside from today’s price. Although it may not seem like much, such a growth rate is impressive for a behemoth such as Enbridge.
It is also worth noting that Enbridge is one of the premier dividend-growth stocks in the county. This Canadian Dividend Aristocrat has a 24-year dividend-growth streak, the 10th-longest streak in Canada. The company estimates that its current pipeline of growth projects will sustain 10% annual dividend growth through the next few years.
The energy sector is highly volatile and full of uncertainty. It is why leaders such as Enbridge are the perfect way to gain exposure to the industry. Stable growth, decent valuations, and a growing dividend make Enbridge a top stock for your Registered Retirement Savings Plan.