With the latest strength in oil prices, the fossil fuel scene is starting to pick up some serious traction, and Canadian pipeline kingpin Enbridge (TSX:ENB)(NYSE:ENB) is likely to be a winner, as the trend continues into the year’s end. The midstream player has kept its dividend safe and sound, despite the profound pressures that would have caused most other managers to slash its payout right down the middle.
Enbridge’s dividend promise to shareholders
Enbridge’s management team is among the most shareholder friendly out there, and they’re more than willing to swim to great lengths to keep its income investors happy through tough times. The company has stretched its payout, but I have never viewed its dividend as being at risk. Why? The management team was more than willing to pull other levers to keep its commitment. Unlike most other companies, Enbridge’s dividend is a promise to its investors. Not just that, but the dividend growth is also a part of the promise.
Energy headwinds will fade in due time
For years, Enbridge has been going up against headwinds. With the coronavirus pandemic likely to end over the next year (hopefully), the pipeline kingpin may finally be ready to pop. To many investors, it’s tough to remember what it was like for Enbridge to have things working in its favour. As oil prices continue their ascent, I suspect investment dollars will be headed back into the ailing energy sector. Fossil fuels are unsexy, and it doesn’t matter which part of the stream a firm is in or how diversified their businesses are. Green energy is sexy, and that’s thanks in large part to Elon Musk and the rise of Tesla stock.
Regardless, numerous EV and clean energy stocks have been bid up to unreasonable valuations. As investors care about earnings and value again, I suspect there will be a rush back into the fossil fuel darlings. Of all the plays, Enbridge is atop my shopping list.
Higher oil and green initiatives bode well for Enbridge stock
The company is shedding its reputation as an old-school energy stock, with moves into green energy. The offshore wind project in Calvados will likely win back many shareholders who fled the scene in favour of more ESG-friendly plays. Although wind won’t be a major needle mover for Enbridge anytime soon, I’m sure many prospective investors will appreciate the move. Who knows? Green energy could one day be a meaningful supplement to the firm’s pipeline business.
In the meantime, Enbridge will continue to rake in steady cash flows from its wide-moat assets. Although I suspect regulatory and environmental hurdles will continue to present themselves in the future, I think the dividend is more than enough of an incentive to hang on through such volatile bouts.
In any case, the stock looks severely undervalued at 1.7 times book and 2.4 times sales, especially considering late 2021 is looking like a booming environment that will be kinder to the battered energy plays that crumbled like a paper bag back in 2020. Things are finally looking up for Enbridge, and the 7.2%-yielding dividend, I believe, is ripe for the picking before the price of admission into ENB stock goes up, perhaps way up.
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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 Joey Frenette has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Enbridge and Tesla.