Enbridge (TSX: ENB)(NYSE: ENB) comes up in practically every single article if you’re talking about two things: energy and dividends. The latter, of course, is where most Canadian investors have particular interest. And for years I’ve been a benefactor of those dividends.
However, I recently made the decision to sell my stake in Enbridge stock. How much? All of it. It wasn’t an easy decision but one I’ve been thinking about for some time. So here I’ll go over why.
Future growth, but how much?
In my opinion, the future growth potential for Enbridge stock is limited. The pipeline company has long-term contracts set up for decades of income, it’s true. This has allowed it to support its dividend and dividend growth for all those years. In fact, the compound annual growth rate (CAGR) of the company’s dividend remains at 14.32%!
However, that dividend was recently boosted again, but by a much smaller 3%. Over the last few years, that growth was around 7%. While Enbridge stock management believes it can reach those levels again, and may see another boost in the future, there are factors weighing on it.
Some of those factors include the necessity to grow. Right now Enbridge stock has pipeline projects coming out its ears. These projects continue to be met with environmental and societal pushback as the world moves to clean energy. Pipelines take up a lot of space, space that could be used for cleaner energy. All that pushback means delays and more delays for future growth.
Cleaner projects
And while those pipeline projects remain stagnant, there hasn’t been all that much evidence of finding clean energy projects from Enbridge stock. Whether I’m a tree hugger or not, the fact remains that clean energy is the future. Not the oil and gas focus that Enbridge has. While other pipeline companies continue to diversify, Enbridge seems to be lagging behind.
True, it has a project underway to create natural gas from waste, but it in the next few decades gas could be all but obsolete. This comes from a massive investment into clean energy that supports not gas creation, but electric power. So what will Enbridge do then run besides the few windmills it has?
Non-performer
But I think the biggest problem I’ve had with Enbridge stock is its performance since I purchased it over half a decade back. The company hit peak levels only to fall during the oil and gas crisis. Since then, it’s just now managed to climb back, which is why I sold it. It now trades at the target price set by analysts of about $56 per share. That target price was over $60 back in 2018.
Honestly, the future doesn’t look much better. Sure gas prices have gone up, but I’m a long-term investor. And long-term I really don’t think Enbridge stock will be my best performing stock. And frankly, when it comes to the dividend, there are stronger, more stable options. For my part, I simply moved my Enbridge shares into Canadian banks that consistently perform well, especially during volatile times like these, and continue to see strong dividends.
Foolish takeaway
Enbridge stock is basically stuck where it was about five or so years ago. It is already meeting its target price and is technically in overbought territory with a relative strength index of 70. The dividend is fine, but there are better ones out there for investors wanting decades of income. So in my opinion, now is a great time to sell this stock and take what you can before another dip in the markets.
