Things could get really rocky this August 2021, but with Enbridge (TSX:ENB)(NYSE:ENB) stock now in the midst of a robust rally, should investors get ready to take profits? Or is the pipeline powerhouse still one of the better Canadian dividend stocks for the third quarter?
Undoubtedly, Enbridge is starting to show signs of becoming the dividend darling that it used to be before 2015. The company recently clocked in some pretty decent second-quarter results that may very well fuel the company’s rally.
Another nice beat for Enbridge
For Q2, Enbridge clocked in another top- and bottom-line beat for the record books. Indeed, the quarter was a huge sigh of relief for investors who’ve been waiting in the name patiently through years of immense volatility. It appears that their pain could be about to pay off in a big way, not just with the juicy dividend, but with outsized capital gains on the back of a more promising industry backdrop.
Fellow Fool contributor Brian Paradza was a big fan of Enbridge’s Q2 result. Even after a magnificent run off the bottom, Paradza labels the name as a buy, although he did mention “distant risks” involved Enbridge’s Line 5 project.
Indeed, Line 5 could become a major sore spot for the company at some point down the road. At this juncture, however, I think such concerns are mostly baked into the stock. Investors have shrugged off the risk and appear ready to hang in there for the bountiful dividend heading into what could be a more favourable environment for the midstream behemoths.
Enbridge is still gushing with ample amounts of cash flow. The dividend payout faced some stress last year, but after another brilliant beat, such stresses appear to be alleviated. As such, I’d have to agree with Paradza when he touts Enbridge stock as a buy. It definitely has one of the better risk/reward profiles out there today and is one of the rare nearly 7% yielders that isn’t at risk of a significant dividend reduction.
What’s the risk/reward looking like for Enbridge stock after such a remarkable run?
Most of the analysts covering the name are bullish, with the Street high pinned at $68 and change. Such a price target entails around 39% worth of upside, and that’s not including dividends. Factor in the 6.8% dividend yield into the equation, and you could have a name that’s capable of north of 45% in year-ahead upside.
Yes, the Street-high target is well above the consensus. But if all goes well with Enbridge’s growth projects and the industry maintains its strength into year-end, I wouldn’t at all be surprised to see Enbridge make a big run, potentially eclipsing its all-time high of $65 and change. Yes, a lot needs to go right for the current rally to hit such levels.
The bottom line
Things haven’t looked this bright for the ailing pipeline in quite some time, and the valuation, I believe, is still quite modest. At the time of writing, shares trade at just 15.7 times trailing earnings. Undoubtedly, Line 5 risks and longer-term carbon emissions are major risks for investors to consider carefully. That said, the latter risk, I believe, could be mitigated by Enbridge’s wind project push.
It’s been a great run, and it will end eventually. But given the current environment, I think Enbridge will continue to power higher.
