Enbridge Stock: Should You Buy Now or Wait?

Enbridge appears oversold right now. Is the stock a buy today or would it be better for investors to wait for a recovery in the energy sector?

| More on:
energy industry

Image source: Getty Images

Enbridge (TSX:ENB)(NYSE:ENB) continues to trade well below the 12-month highs. Investors with a contrarian investing style are wondering if this is the right time to add Enbridge stock to their portfolios.

Enbridge earnings

Despite ongoing challenges in the energy sector, Enbridge reported solid Q3 2020 results.

Adjusted earnings came in at $961 million, or $0.48 per share, compared to $1.12 million, or $56 per share, in the same period last year. Distributable cash flow (DCF) was $2.09 billion, just under the $2.1 billion recorded in Q3 2019.

Enbridge reaffirmed its 2020 DCF financial guidance of $4.50-$4.80 per share. That’s good news for investors who rely on the dividends for income.

Enbridge acted quickly in the early part of the pandemic to shore up liquidity. The company tapped attractive debt markets in the spring to raise cash needed for 2020 and 2021. At the end of Q3, Enbridge had $14 billion in available liquidity.

Enbridge went through a reorganization in the past few years. The company streamlined its operations and sold roughly $8 billion in non-core assets. Those measures positioned the business well to navigate the pandemic.

Oil impact on Enbridge stock

The oil pipelines saw throughput drop in recent months due to a plunge in fuel demand. Enbridge moves crude oil from producers to refineries that use it to make jet fuel, gasoline, and diesel fuel. Fuel demand is improving, but the recovery will be gradual through 2021. Once vaccines are widespread, governments should start to lift travel restrictions. That will help airlines. In addition, people will begin to spend at least part of the week in the office. This should boost gasoline demand.

Enbridge’s other business units are performing well. The renewables group, which includes wind and solar facilities, continues to grow. The gas transmission, storage, and distribution businesses are providing reliable cash flow, while the liquids pipelines wait for the recovery in oil demand.

With the secured capital program and the embedded growth in the various businesses Enbridge expects DCF per share to increase by 5-7% per year through 2022.

The company is on track to hit $300 million in cost savings in 2020.

Dividend safety

The board declared a quarterly dividend of $0.81 per share when the Q3 results came out. Given the strong cash position and the anticipated DCF growth in the coming years the distribution should be safe. In fact, investors could see a dividend hike in 2021.

Should you buy Enbridge stock now?

Enbridge moves 25% of the oil produced in Canada and the U.S. and 20% of the natural gas used in the United States. It is a giant in the energy infrastructure industry and plays an essential role in the smooth operations of the economy.

The stock trades near $39 per share at the time of writing and offers an 8.3% yield. Enbridge stock started 2020 above $50, so there is decent upside opportunity once the energy sector normalizes.

The coming six months might be a bit rocky for the oil market, but the situation should start to improve in the back half of 2021. In the meantime, investors who buy now get paid well to wait for the recovery.

If you have some cash on the sidelines, Enbridge stock appears oversold today and deserves to be on your radar.

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 Andrew Walker owns shares of Enbridge.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »