Enbridge (TSX:ENB) is among the most popular stocks on the TSX. Part of the energy sector, Enbridge stock trades at a market cap of $100 billion and an enterprise value of $185 billion. Despite the cyclicality associated with the energy sector, ENB stock is up 283% in the past 20 years. After adjusting for dividends, total returns stand at 787%.
Comparatively, since August 2003, the TSX index has returned less than 400% in dividend-adjusted gains. Additionally, Enbridge also provides shareholders with a tasty dividend yield of 7.2%.
But let’s see if Enbridge stock can continue to outpace the broader markets in the future.
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Is Enbridge stock a buy, sell, or hold?
Enbridge is a diversified energy infrastructure company that operates through business segments such as Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewables, and Energy Services.
Its gas distribution segment added 21,000 customers in the first six months of 2023 and is forecast to end 2023 with 42,000 customer additions. Enbridge expects Ontario’s population to grow by 2.5 million in the next decade, driving demand for gas distribution higher while industrial demand remains reliant on natural gas.
In Europe, Enbridge has offshore wind projects in France under construction. It expects to install a wind turbine in Fecamp in the first quarter (Q1) of 2024, allowing it to generate 497 megawatts of power. The energy giant also has a pipeline of projects in North America, increasing its power-generation capacity by 4.5 gigawatts.
Armed with a differentiated asset base and utility-like cash flows, Enbridge is a top pick for income-seeking investors. For instance, less than 2% of its EBITDA (earnings before interest, tax, depreciation, and amortization) is subject to commodity risk.
Around 95% of its customers are equipped with an investment-grade balance sheet, which also lowers credit risk. Further, 80% of its EBITDA is indexed to inflation, allowing Enbridge to increase dividends by 10% annually in the last 28 years.
What is the target price for ENB stock?
Enbridge’s distributable cash flows have totalled $5.96 billion, or $2.94 per share, in the last two quarters, indicating a payout ratio of around 60%. So, Enbridge has enough liquidity to reinvest in capital projects, lower balance sheet debt, and increase its dividends further, showcasing the resiliency of its business model.
Priced at 17 times forward earnings, ENB stock trades at a reasonable valuation, given its tasty dividend yield and accelerating earnings growth forecasts. Analysts remain bullish on Enbridge stock and expect shares to surge 16.5% in the next 12 months. After adjusting for dividends, total returns will be closer to 24%.
Out of the 16 analysts tracking Enbridge stock, nine have a “buy” recommendation, and seven recommend a “hold.” No analyst has a “sell” recommendation.
Enbridge is executing its capital program worth $19 billion, which should drive future cash flows higher. Its resilient low-risk business model is supported by scale, diversification, and robust cash flows. Moreover, the energy heavyweight continues to return capital through consistent dividend hikes and share buybacks.
Enbridge’s protected and inflation-linked EBITDA allow it to generate cash flows across market cycles. It remains one of the top TSX stocks to buy at the current valuation.
