Are you looking for dividend stocks that are both high-yielding and safe? If so, you should consider Enbridge Inc. (TSX:ENB) today. With a dividend yield of 8% and good prospects ahead, this could be a once in a lifetime opportunity to buy Enbridge stock.
Let’s explore.
Enbridge stock’s volatility reveals its record of value creation
The graph of Enbridge’s 10-year stock price movements shows volatility that might be considered too high for this “safe” energy infrastructure stock. I mean, the fact is that the underlying business tells a different story than Enbridge’s stock price performance.
In the first six months of 2023, Enbridge continued to show us its strength and reliability. This was demonstrated in its record volumes, high utilization, and strong cash flows. For example, Enbridge’s adjusted EBITDA increased 8% to $8.5 billion. Higher volumes and increased economic interests in various pipelines drove this.
Moving on to Enbridge’s cash flows, we see more of the same strength. In the first six months of 2023, distributable cash flow came in at $5.9 billion, 2.5% higher than last year. While this is not a huge increase, the point is that it’s steady and reliable. In fact, in the last five years, its free cash flow has more than doubled to $6.4 billion.
Enbridge’s 8% dividend yield is supported by reliable cash flows and risk controls
All of this points to a strong business. But there’s another factor that’s just as important as Enbridge’s healthy business fundamentals. That is Enbridge’s conservatism, both operationally and financially.
It bears mentioning that for many investors, an 8% dividend yield strikes alarm bells. This is a totally appropriate reaction, and one that ensures that we do our work to stay out of trouble. In Enbridge’s case, the 8% yield is not a warning sign, in my view. This is because it’s backed up by some strong risk-mitigating factors that make all the difference.
The first is the fact that Enbridge’s cash flow profile is diversified across its different businesses. Also, 98% of the company’s EBITDA is underpinned by long-term contracts or “take or pay” contracts (with the added feature of inflation protection and cost sharing provisions).
Taking this a step further, Enbridge’s recent transactions show us that the business is growing increasingly conservative. For example, the company’s recent acquisition of three U.S. natural gas utilities will provide additional low-risk, regulated revenue. This will help to strengthen the balance sheet and further position Enbridge for the energy transition.
Strategic moves position the company for the future
Finally, Enbridge’s strategic moves are setting the company up for the future. Through its focus and investment in areas like liquified natural gas, storage, and offshore wind, Enbridge is securing its long-term future today.
This leads me to conclude that Enbridge will be relevant for years to come – and it will prosper even in the new energy realities. There have definitely been many uncertainties and risks that have come in the last few years. But the reality is that Enbridge is still standing strong, and as it positions itself for the new realities, I think investors will soon see the value in Enbridge stock again.
Hence, I believe that it won’t be trading at such underwhelming valuations for long. And we might not have another opportunity to enjoy Enbridge stock’s 8% dividend yield for long either.
