Why Enbridge Stock Is Still the Best Energy Stock to Buy

Enbridge has a long history of generating shareholder value with minimal volatility and plenty of dividend income.

| More on:
pipe metal texture inside

Image source: Getty Images

After many volatile years following the oil and gas sector, there’s one thing I know for sure: expect volatility. And lots of it. That’s why gaining exposure to this very lucrative industry is oftentimes very stressful. It’s also why Enbridge (TSX:ENB) stands out as one of the best energy stocks.

Let’s explore.

Consistent and predictable cash flows

First of all, I would like to review Enbridge’s earnings and cash flow profile. It’s a profile that spans many decades and that has proven to be consistent and predictable. This is driven by the fact that a big portion of Enbridge’s revenue is regulated.

For example, in the last five years, Enbridge has steadily grown its revenue by 15%, or at a compound annual growth rate (CAGR) of 3%. The last eight years are also an indication of the type of growth that we have come to expect from Enbridge. Despite volatile commodity markets, Enbridge’s cash flows remained pretty consistent — and they increased at a CAGR of over 13%. Today, Enbridge is churning out over $11 billion in operating cash flow, money that is enabling the company to reward its shareholders and invest in its future.

Enbridge’s dividend yield of 6.65%

One of the benefits of owning a stock with such a strong cash flow profile is that this cash is often used to reward shareholders with dividends. And, in fact, this is exactly what Enbridge has been doing. In fact, the company’s dividend profile is another indication of the stability and strength of its business.

Enbridge has 28 years of annual dividend increases under its belt. During this time period, its annual dividend has grown at a CAGR of 7.25%, to the current $3.55 per share. This translates into a whole lot of dividend income for shareholders. Importantly, this growth continues. Its latest dividend increase was a 3.2% increase in its quarterly dividend earlier this year.

But it’s not only Enbridge’s dividend profile that has benefitted. Enbridge’s strong business has also ensured a strong stock. Take a look at Enbridge’s stock price graph below to get a sense of its performance, which reflects the long-term stability and growth of its underlying business.

Ready for the future

We’re all painfully aware of the energy transition that is taking place. Despite the long and difficult path to get there, this transition is necessary. Any company that’s not preparing for it will get left behind. Thankfully, Enbridge saw the writing on the wall years ago — even when it was not so widely accepted as it is today.

Thus, the company began investing in renewable energy sources. Today, this segment is contributing a small amount to Enbridge’s earnings. In 2023, renewables are expected to account for 3% of Enbridge’s earnings before interest, taxes, depreciation, and amortization. But this will be accelerating going forward, as this energy stock will not stand still.

You see, Enbridge is in full construction mode in this segment with four offshore wind farms and 10 solar operations in construction. Enbridge recently completed building a large wind farm in France, with the company boasting on-time and on-budget completion. Saint Nazaire is France’s first operational offshore wind farm, providing 480 megawatts of electricity — enough to provide 700,000 people with electricity every year.

Enbridge stock holds steady above $50

Today, Enbridge’s stock price is trading at approximately $53.50, which is 42% higher than five years ago and 158% higher than 15 years ago. The climb has been relatively steady for an energy stock, and the dividend yield has been very attractive. It’s clear to me that Enbridge stock was and is a keeper.

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 Karen Thomas has a position in Enbridge. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

More on Energy Stocks

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »

Oil pumps against sunset
Energy Stocks

Freehold Royalties Stock: A Dependable 7.5% Monthly Dividend

Canadian investors hungry for income can trust Freehold Royalties Ltd. (TSX:FRU) stock for its fantastic monthly dividend in 2023.

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Wednesday, May 31

The TSX index could remain volatile today, as discussions and final voting on the U.S. debt ceiling deal will remain…

Read more »

Energy Stocks

Better Dividend Buy: Suncor Energy or Canadian Natural Resources Stock?

Suncor Energy stock's additional 10.6% dividend raise in 2023 is doubtful. Canadian Natural Resources stock may outperform despite a current…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

TFSA Investors: The Best TSX Energy Stocks for Fast-growing Passive Income

Are you building your TFSA passive income portfolio? Then you can’t miss out on having Canadian energy stocks.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Suncor Stock: How High Could it Keep Going?

Down 26% from 52-week highs, Suncor stock offers you a dividend yield of 5.3%. But is this TSX energy stock…

Read more »

canadian energy oil
Energy Stocks

Better Buy: Suncor Energy Stock or Canadian Natural Resources Stock?

Suncor and Canadian Natural Resources are off their 12-month highs. Is one now oversold?

Read more »

Oil pumps against sunset
Energy Stocks

The Top TSX Energy Stocks to Buy This Summer

Recession fears have disproportionately weighed on TSX energy stocks lately.

Read more »