Enbridge’s (TSX:ENB) Stock Returns This Decade Will Shock You

Enbridge Inc. (TSX:ENB)(NYSE:ENB) stock has continued to dominate, despite its customers struggles. Find out what makes this long-term winner so special.

Enbridge (TSX: ENB)(NYSE: ENB) has been an incredible investment. In 1995, shares were priced at just $4. Today, they’re above $50. And that return doesn’t factor in dividends, which have often exceeded 5% per year.

Over the most recent decade, the performance was downright spectacular.

In 2009, oil prices hovered around US$100 per barrel. In 2011, they surpassed US$130 per barrel. By 2016, however, crude price plummeted below US$40 per barrel. Over the last five years, they’ve averaged roughly US$50 per barrel.

Pricing pressures have caused nearly every oil stock to struggle this decade, with some falling more than 80% in value. As a pipeline company, Enbridge was directly exposed to the energy industry. How did it perform?

This is outrageous

In December of 2009, Enbridge stock traded at $22. Today, it’s priced at $51 — good for a 130% return. If you had reinvested dividends along the way, your return would have been closer to 200%.

Let’s put those returns into context. Over the same period, the S&P/TSX Composite Index returned roughly 50%. Therefore, Enbridge delivered four times the performance of the market overall. This is simply incredible, given oil prices were cut in half and the more specific S&P/TSX Equal Weight Oil & Gas Index fell by one-third.

It’s rare to find a company deliver 200% returns while, over the same period, its industry delivered a 35% loss. Enbridge is simply a phenomenal company, and, luckily for new investors, all of its advantages remain intact.

Nothing has changed

What makes Enbridge so successful? It’s all about the underlying business model: pipelines.

Enbridge is the largest pipeline owner and operator in North America. Its market cap exceeds $100 billion. If you know anything about pipelines, this is a terrific business to be in.

Let’s say you’re an oil exploration company in Alberta and strike it rich. How do you get your product to market? You can send it via truck, but this is extremely costly, and the odds that there’s road infrastructure directly to your project are low. What about by boat? Not if you’re in landlocked Alberta. Rail is a viable option, but it has the same issues as truck: it can be inefficient, costly, and dangerous.

The best option, by far, is to use a pipeline. Pipelines can ship oil on a second-by-second basis. They are easily the safest, cheapest, and most reliable option. These advantages make pipelines pseudo-monopolies. If there’s a pipeline nearby, it soaks up all of the regions oil transportation needs. And because pipelines can take years to build and can cost more than $1 billion, competition is limited.

This monopoly-like position allows pipelines to charge customers based on volumes, not commodity pricing. As oil prices fluctuate, Enbridge’s profits remain steady. That’s a big reason for its outperformance this decade. Through 2030, Canada’s energy sector is expected to grow oil and gas production, so Enbridge should increase earnings no matter where commodity prices head.

Over the next five years, analysts expect the company to grow earnings by 5% per year. That combined with its 5.8% should generate double-digit returns for shareholders.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Ryan Vanzo has no position in any stocks mentioned. 

More on Dividend Stocks

oil pump jack under night sky
Dividend Stocks

Forget GICs: This Dividend Stock Pays You 4% Monthly

GIC rates look thin after taxes. This top Canadian dividend stock pays you each month, yields about 4%, and covers…

Read more »

infrastructure like highways enables economic growth
Dividend Stocks

3 Savvy Ways Canadians Can Invest in the Country’s Infrastructure Boom

Find out how Prime Minister Carney's plans for Canadian infrastructure can benefit investors and revitalize key industries.

Read more »

ways to boost income
Dividend Stocks

$10,000 in These Stocks Could Be All It Takes to Build Real Monthly Income

A $10,000 investment split between two monthly-paying Canadian REITs could currently generate about $50 in passive income every month.

Read more »

A plant grows from coins.
Dividend Stocks

Are These Still the Best Dividend Stocks in Canada?

With GICs yielding over 4% and their business models shifting, are BCE, Enbridge, and TD Bank still among Canada's top…

Read more »

Concept of rent, search, purchase real estate, REIT
Dividend Stocks

Looking for TFSA Income? This 7.6% Dividend Stock Should Snag Your Attention

Firm Capital Property Trust's monthly distribution recently showed improved safety. Here's why the 7.6% yield belongs in your TFSA.

Read more »

shopper carries paper bags with purchases
Dividend Stocks

$1,000 in This Stock Could Be Paying You for the Rest of Your Life

A $1,000 investment won't create instant passive income, but Fortis's 52-year dividend-growth streak gives it decades-long potential.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

2 TSX Dividend Stocks to Buy With $2,000 Now

Given their reliable cash flows, consistent dividend increases, and healthy growth prospects, these two TSX stocks would be excellent buys…

Read more »

Asset Management
Dividend Stocks

This Is the Dividend Stock I’d Never Trade Away

A 26-year dividend-growth streak, record production, and a management team committed to shareholder returns. Here's why CNQ stays in my…

Read more »