Is Enbridge a Top Dividend Stock for Retirees?

Enbridge pays an attractive dividend and has a large capital program to support further distribution growth. At the same time, there are risks to consider when evaluating this stock.

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Canadian pensioners are searching for top dividend stocks to add to their income portfolios. Enbridge (TSX:ENB)(NYSE:ENB) has delivered great returns for decades, but retirees wonder if the stock still deserves to be a top pick.

Energy sector

Enbridge is a leading player in the North American energy infrastructure industry. Oil producers had a rough time last year as fuel demand plunged. The situation is now improving as travel restrictions begin to ease and companies start welcoming workers back to the office.

Airlines are adding domestic routes and hiring staff to accommodate increased bookings. That translates into higher demand for jet fuel. At the same time, commuters are hopping back into their cars to make the trip to their desks.

Some analysts predict a strong rebound in gasoline demand even if people continue to work from home for part of the week. The idea is that commuters who previously used public transport will now prefer to drive.

Enbridge should see its oil pipeline throughput return to near capacity in the coming months. That’s good news for investors.

Growth

As electric vehicles slowly replace those with combustion engines, domestic gasoline demand will drop. Enbridge realizes it needs to diversify its revenue streams and is investing in new natural gas and renewable energy projects, which should attract more ESG investors. The company has a $16 billion secured capital program in place, of which $6 billion is already spent.

The natural gas transmission, gas utility, and renewable energy projects account for $12 billion of the portfolio through 2023. Beyond that timeframe, Enbridge has an additional $28 billion in development opportunities under consideration. Natural gas and renewable energy make up $21 billion of the investments.

On the acquisition side, Enbridge has the size and financial firepower to make strategic purchases to drive future growth.

Risks

Opposition to oil pipelines is growing and that situation has to be considered when evaluating the stock. The governor of Michigan is trying to shut down a key Enbridge pipeline that runs from Michigan to Ontario under the connection point of Lake Huron and Lake Michigan. Enbridge wants to build a new tunnel under the lakes to install a replacement pipeline.

Dividends

Enbridge has a great track record of dividend growth. The distribution increased by a compound annual dividend growth rate of 10% since 1995. Looking ahead, the dividend might not increase as much as it did in the past couple of decades, but investors should still see annual hikes in line with the anticipated 5-7% growth in distributable cash flow.

Should retirees buy Enbridge now?

Getting new oil pipelines built will become increasingly more difficult and it is possible that another major new project will never get approved.

The positive side of this is that existing infrastructure becomes more valuable and there could be a wave of consolidation in the industry over the next few years as players scramble to acquire top assets.

Enbridge will likely be one of the buyers.

Enbridge’s non-oil capital programs should boost revenue for years to come. All things considered, the stock price looks attractive right now near $50 per share and provides a 6.7% dividend yield.

If you have some cash to put to work in an income portfolio, Enbridge looks appealing at the current share price.

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.

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