One of the hardest-hit industries in Canada these last few weeks has been energy stocks. As worries about the economic situation have escalated, investors have been concerned about the demand for oil if the economy goes into a recession.
Making matters worse for energy companies, in addition to the demand issues, the industry now faces supply issues. With Russia failing to make a deal with OPEC, and Saudi Arabia consequently pulling out of the deal, the world could see a massive shift in supply-and-demand fundamentals in oil markets.
These developments on both the supply and demand side have rapidly driven down the price of oil. And while some investors may have been caught off guard, the situation creates a major opportunity to buy energy stocks that are trading well undervalued.
Enbridge is a massive energy infrastructure company with a current market cap north of $85 billion.
The company is a major player not only in the Canadian energy industry but across North America, as the company transports up to 25% of North America’s crude oil. It also transports up to 20% of the natural gas consumed in the United States.
In addition, it also owns the largest natural gas distribution company in Canada. The diversification helps make Enbridge one of the most reliable energy stocks.
Over the last few years Enbridge has reduced its reliance on liquids pipelines. In turn, it’s increased its gas transmission, distribution, and storage assets. The move better diversifies Enbridge’s operations and helps lower risk to its business.
The energy company’s assets are now made up of 53% liquids pipelines, 42% gas transmission, with distribution and storage as well as power and energy services making up the remaining 5%.
All these strong operations have combined to help Enbridge grow its business and report some impressive numbers.
Over the last few years, Enbridge has grown its earnings before interest, taxes, depreciation, and amortization (EBITDA) considerably.
And because so much of its cash flow is predictable, it has allowed Enbridge to grow its dividend with confidence. The dividend is up nearly 75% over the last five years and, going forward, will be increased as Enbridge grows its EBITDA.
At current prices, the dividend — which only pays out just 70% of its 2020 estimated distributable cash flow — yields roughly 7.5%. That’s an attractive dividend rate for such a strong and reliable business. Plus, it trades at an enterprise value to EBITDA ratio of just 11 times. That’s an extremely cheap multiple for a top blue-chip energy stock.
Most importantly, the company is in a strong financial position. It currently has a debt-to-EBITDA ratio of roughly 4.6 times and an interest coverage ratio above 3.5 times.
Enbridge is one of the top energy stocks to buy today, both in terms of value as well as reliability. It’s also a top stock for investors looking to add a high-quality dividend payer to their portfolios.
There’s no telling whether or not the stock may get cheaper in the short term. However, at current prices if you’re buying for the long run, there is no need to worry. Enbridge will continue to be one of the strongest companies in Canada for decades to come.