Have you added Enbridge (TSX: ENB)(NYSE: ENB) stock to your portfolio? The energy behemoth currently represents one of the most lucrative opportunities on the market for investors. Here’s what that opportunity is, and why you should buy the stock now and hold it for the long term.
Enbridge stock is still a good investment
There’s little doubt that the future of energy lies outside of fossil fuels and with renewables. That statement doesn’t bode well for prospective investors looking at Enbridge, which is best known for its massive pipeline network.
That pipeline network connects oil-rich regions with refineries and storage facilities across North America. Enbridge charges customers for use of its pipeline network in a fashion that is not unlike a toll-road network. Enbridge generates a steady stream of revenue from that pipeline network, which is then passed on to investors in the form of a generous dividend (more on that in a moment).
In terms of volume, Enbridge hauls a quarter of all crude produced in North America and one-fifth of the natural gas consumed in the U.S.
As impressive as that sounds, there are two other parts of Enbridge that will garner increasing interest in the next few years. First, Enbridge operates one of the largest natural gas utilities on the continent, boasting 3.8 million customers. The other is Enbridge’s growing portfolio of renewable energy assets.
The renewable portfolio currently boasts a generation capacity of two gigawatts (GW), which is enough to power approximately 900,000 homes. That portfolio includes 22 wind farms and six solar energy facilities. The company also has hydro and geothermal facilities.
A solid (but risky?) income stream
One of the main reasons why investors flock to Enbridge is the company’s dividend. Enbridge offers a quarterly dividend that currently works out to an impressive 8.59% yield. Not only does that represent one of the best-paying yields on the market, but Enbridge also comes with a solid history of handsome payouts. Looking back over the past five years, the yield has averaged a still-impressive 5.25%.
One of the reasons why Enbridge’s yield is so high is because the stock has yet to recover fully from March lows. By way of comparison, the overall market is approaching a breakeven point for 2020, while Enbridge is still down over 20% year to date. That’s not to say that Enbridge hasn’t recovered since the lows of 2020; following the crash in March the stock was down over 35%.
Critics of Enbridge will point out that the current yield is unsustainable. There is some truth to this, particularly if current market conditions persist. If, however, Enbridge stock continues to claw back those losses, the yield will come more in line with expectations. Also worth noting is that a harsher second wave of COVID-19 could force another full market closure. If that does happen, the market could come down to Enbridge’s level. The only thing certain is that over the longer term, the market will recover.
In short, there is an endless array of variables to consider. This might make Enbridge stock a higher risk than other options on the market, but the potential returns outweigh those risks.
Final thoughts
Enbridge is a peculiar investment. The company operates in a defensive segment that continues to generate recurring revenue. Additionally, Enbridge is also diversifying into renewables, setting up additional revenue streams for long-term growth. Throw in an incredibly lucrative quarterly dividend, and there should be no argument about including the stock in any portfolio.
In my opinion, those long-term benefits far outweigh the short-term risks that stem from the COVID-19 pandemic. Investors would do well to buy Enbridge stock at a discount now, letting that dividend grow until the market recovers.
