The start of 2022 was pretty dramatic as hedge funds went on a selling spree with their tech stock holdings. The tech bubble burst and pushed many investors to safer stocks that have a history of providing stable returns. Enbridge (TSX:ENB)(NYSE:ENB) was a sure bet as the energy sector recovered from the pandemic, with oil prices up more than US$80/barrel. If you had invested in Enbridge at the start of 2022, you’d have locked in a high dividend yield of 6.9%.
How much is a $2,000 investment in Enbridge worth now
At the start of the year, your Tax-Free Savings Account (TFSA) got a fresh new limit of $6,000. If you invested $2,000 in Enbridge, your investment is now worth $2,167 ($98 in stock price appreciation + $69 in two quarterly dividends). An 8% return in nine months cannot fight high inflation. But it’s a good return in this bearish market when the TSX Composite Index is down more than 10% year-to-date.
So, what helped Enbridge shares outperform the stock market?
Enbridge benefits from the global energy crisis
The year 2022 is remarkable for the energy supply chain. The Russia-Ukraine conflict has created a global energy crisis, with Europe at the epicenter. The United States and Europe have imposed sanctions on Russian oil and gas, which supplies 38% of Europe’s needs.
With Russia out of the picture, Europe has been searching for new suppliers. The U.S. came to the rescue and released 180 million barrels of oil from its Strategic Petroleum Reserve (SPR) in July. It also increased natural gas exports to Europe, becoming the largest liquefied natural gas (LNG) exporter in the first half.
Where does Enbridge come into this arrangement? Enbridge has the largest oil and gas pipeline infrastructure to export oil and gas from Canada to the U.S. Demand is currently so high that Enbridge’s pipelines are running at full capacity throughout the year.
Enbridge is eyeing the North American LNG export market, which it expects to grow 190% by 2040. It aims to gain ~30% share of the LNG export market with its upcoming projects, Texas LNG and the Rio Grande. The existing, under-construction, and upcoming projects will increase Enbridge’s potential LNG export volumes to 9 billion cubic feet per day.
What lies ahead for Enbridge investors?
Investors love Enbridge for its regular and incremental dividends. The company has been paying dividends for 67 years while growing them consecutively for 27 years at a compound annual growth rate (CAGR) of 10%. The company slowed its dividend growth to 3% in 2020 and maintained this growth as the pandemic affected oil volumes and its cash flows.
Enbridge has now returned to its pre-pandemic level. It expects its distributable cash flow per share to grow by 8% in 2022. This growth could materialize into a higher dividend per share in 2023 which I expect could increase by 5-7%. Moreover, a whole new market of LNG exports could appreciate Enbridge‘s stock price through to 2030 and beyond.
What should you do?
A $2,000 investment in Enbridge has given you a head start in the LNG export opportunity. But don’t stop there. It’s a stock you should own for decades and invest at frequent intervals as and when the stock falls. You need not invest $2,000 all at once and exhaust your TFSA limit early.
You can buy two shares of Enbridge every month for around $100-$110. The 5-7% volatility in stock price can help you reduce your average cost per share and enhance your earnings. Plus, your $2,000 investment would give you a $140 annual dividend that can buy you over two stocks of Enbridge.
Regular investments in Enbridge can grow your passive income portfolio. A $100 monthly investment in Enbridge for five years can increase your invested amount to $6,000 with annual dividends of over $360.
