The Motley Fool

Is Enbridge (TSX:ENB) Doomed for Failure?

Gas pipelines
Image source: Getty Images

It’s no secret that the oil and gas industry has been suffering the last few years. Yet lately, things have been getting worse instead of better. Even after a slight uptick this week thanks to a price correction, investors are still wary of buying into oil and gas. And they should be.

But what about pipeline companies like Enbridge (TSX:ENB)(NYSE:ENB)? This is where things get difficult. While oil and gas companies will have a lot to do to prove to investors that survival is imminent, for Enbridge it’s not as clear. Let’s dig into the problem, the solution, and the pandemic.

The problem

Let’s rewind a few years, when things started to dip for oil and gas. Here in Canada, we have the oil. The problem was shipping it across the continent. Around the world, the problem was made worse by Russia and the Middle East. Russia and countries like Saudi Arabia continued to keep up oil production. In fact, in some cases production increased. This pushed oil and gas prices lower and lower.

Another problem then came about: is oil and gas the future any way? Renewable energy companies have become more and more common. Even as pipelines were created, environmental and social activists argued that renewable resources that wouldn’t destroy the land should be used instead. This has brought doubt onto whether oil and gas will be around in the future.

The solution

But, Enbridge put billions aside to create pipelines and end the oil and gas glut in Canada. The company put $19 billion aside for growth projects to see them through the next several years. All of this was supported by long-term contracts, which should continue bringing in cash to the company for decades.

This has meant that the company continues to payout its dividends, even after seeing earnings per share decrease year over year by 4.5%. On the plus side for investors, that means you can lock in a 7.72% dividend yield as of writing.

The pandemic

But what about the pandemic? The company already had major hurdles, as I mentioned, before the pandemic hit. Environmental and social concerns from the building of pipelines has been a major discussion in the media. With a presidential election in the United States in the coming months, some pipelines have already been turned out. It could be that Enbridge is next on the chopping block.

Meanwhile, the pandemic already put a stop to building some pipelines. Should further waves occur, it could mean that there could be a work stoppage yet again. That’s especially if serious measures are taken in the United States, where COVID-19 cases have soared. This would seriously hurt the company yet again, and could even mean a stoppage to dividend payouts.

Foolish takeaway

Whether Enbridge is doomed is still up for debate, but the future isn’t as bright as it once was. Should former vice president Joe Biden be elected, he has already announced investing in renewable energy projects. That’s money that would be taken from oil and gas giants. Pipelines simply do not have the capacity to be transformed into renewable energy uses. Unfortunately, these projects will just become worthless.

However, even if this does happen, it’s likely years and even decades away. There could certainly be an upturn for Enbridge in that time. Once these projects are built, and oil and gas is flowing, investors should see a huge increase in share price in the next few years. But if you’re looking for a long-term investment, I simply don’t believe Enbridge is for you.

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.

Fool contributor Amy Legate-Wolfe owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends Enbridge.

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