Enbridge Inc (TSX:ENB): Brace for a Shutdown

Enbridge Inc (TSX:ENB)(NYSE:ENB) is a high-yield dividend stock, but recent developments in Michigan put its business in jeopardy.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Enbridge (TSX:ENB)(NYSE:ENB) recently released its full-year 2020 earnings. They were surprisingly decent. For the full year, net income technically declined to $3 billion from $5.3 billion. But that was almost entirely due to non-recurring, non-cash factors. Cash from operating activities actually grew by $400 million, while adjusted earnings declined from $5.3 billion to $4.9 billion. Most importantly, distributable cash flow — the metric that shows the company’s ability to pay dividends — grew by $200 million. Broadly, these were encouraging metrics. GAAP earnings weren’t so great, but cash flow metrics were generally solid. For an energy company in the age of COVID-19, this is good news.

But before you get too excited, there is one looming danger you need to keep in mind. A major political headwind, it could jeopardize Enbridge’s current revenue stream. So far, this threat hasn’t materialized. But the political climate in the United States makes it a very real possibility.

The political situation unfolding in Michigan

Currently, the political situation in Michigan — where one of Enbridge’s pipelines runs — is not favourable to pipelines. Gov. Gretchen Whitmer recently revoked Enbridge’s Line 5 easement, which the company needs to operate in the state. If Whitmer’s order stands, then Enbridge will have to completely shut down its Line 5 operations in the state of Michigan. Of course, that order is subject to judicial review. Enbridge has the right to challenge it and has indicated that it will simply ignore the governor’s actions for the time being. Nevertheless, in a worst-case scenario, Enbridge could lose big.

Will the state get its way?

The million-dollar question pertaining to Line 5 is whether the Michigan government will get its way. The answer appears to be no. A state energy board already cleared Enbridge to do more construction on Line 5. On top of that, the state would need to prevail in court and then possibly in appeals court in order to have Line 5 shut down. Put simply, the state has more obstacles in front of it than Enbridge does. That doesn’t mean it can’t win though. Enbridge has generally won most of the U.S. lawsuits threatening its pipelines, but you never know when a judge will buck the trend.

Foolish takeaway

Enbridge is currently one of the highest-yielding Canadian energy stocks. With a 7.6% yield at today’s prices, it throws off buckets of cash. That remains the case, even if its pipeline construction projects are halted. Enbridge’s dividend is well supported by cash flows from existing projects. So, even if the Line 3 replacement or Line 5 tunnel were struct down, the company’s dividend, at least, would be safe. The situation in Michigan throws a wrench in that analysis. If the governor succeeds in shutting down Enbridge’s already existing infrastructure, then even its dividend is not safe. So, this remains a situation for Enbridge investors to pay close attention to.

Should you invest $1,000 in Franco-nevada right now?

Before you buy stock in Franco-nevada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Franco-nevada wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Dip Buyers Could Win Big in Today’s Market Dip

If you want to buy the dip, think long-term. Which is why this TSX stock is a top option.

Read more »