Enbridge (TSX:ENB) Stock Is Cheap! Buy it for Dividends and Growth

Why Enbridge is an ideal stock for investors seeking growth and income.

| More on:
Pipeline

Image source: Getty Images

Shares of oil and gas companies have taken a fair amount of beating in the recent past courtesy of lower oil prices. A significant decline in demand amid the coronavirus spread and increased supply dragged oil prices down. However, the sharp decline in the oil and gas stocks presents a good entry point to buy fundamentally strong companies like Enbridge (TSX:ENB)(NYSE:ENB) for the long term.

Enbridge transports about one-fourth of the crude oil produced in North America and 20% of the natural gas consumed in the United States. The company also has a renewable power generation business in North America and Europe. Besides, it is engaged in gas distribution and storage. Enbridge’s stable and predictable cash flows make it an attractive long-term investment.

Why Enbridge stock?

Enbridge stock has corrected more than 22% so far this year, which presents an excellent buying opportunity. Enbridge, being a transporter of fuel, has minimal exposure to the commodity, implying the volatility in the oil prices will not have a significant impact on it. Further, the company’s diversified portfolio, including the resilient utility business, ensures steady cash flows.

Enbridge remains well positioned to survive and thrive in the long run, despite near-term hiccups, thanks to its top-notch client base and strong liquidity position. Enbridge has ample liquidity to survive through 2020, even after accounting for dividends and maintenance capital. Investors should note that Enbridge’s 2020 capital needs are already funded, and the company has more than $12 billion in liquidity, which is more than enough to meet the capital needs and debt maturities till 2021.

Meanwhile, Enbridge’s majority of volumes come from large customers (like Exxon, BP, Suncor, and Duke, to name a few), which is comforting. These customers have integrated business and an investment-grade balance sheet, which mitigates credit risk.

Enbridge also has a utility business, which is resilient to economic cycles and acts as a hedge. The utility business is fully regulated and generates stable cash flows. The company’s utility assets have more than doubled in the recent past, thanks to the Spectra merger. Consistent demand and the utility base rate growth will continue to generate stable future cash flows.

Enbridge is also an ideal income stock, thanks to the long history of paying high dividends to its shareholders. Investors should note that Enbridge is a Dividend Aristocrat and has increased its dividends for 25 consecutive years. Moreover, in the last three years, Enbridge’s dividends have grown by nearly 10% annually. The company’s dividend yield stands at about 8%, which is lucrative.  Further, the current payout ratio seems sustainable, thanks to the company’s strong liquidity position and diversified business.

Bottom line

Enbridge’s tightly structured business and consistent cash flow-generating capabilities enable it to weather any crisis. The company will see a strong resurgence in volume once the demand normalizes. Meanwhile, the company’s resilient utility business acts as a safety net. The recent pullback in Enbridge stock offers an excellent long-term investment opportunity for investors seeking growth and income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Sneha Nahata has no position in any of the stocks mentioned. 

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »