Enbridge (TSX:ENB) just gave its shareholders some good news. Investors who focus on high-yield passive income are wondering if ENB stock is currently undervalued and good to buy for a self-directed portfolio focused on passive income.
Enbridge news
Enbridge just released its 2024 financial guidance. The energy infrastructure giant expects its base business earnings before interest, taxes, depreciation, and amortization (EBITDA) to come in at $16.6 billion to $17.2 billion next year. Distributable cash flow (DCF) is expected to be $5.40 to $5.80 per share. This would mean a 4% increase in the base business EBITDA and a 3% increase in DCF compared to the midpoint of the 2023 guidance. Management confirmed the company is on track to hit its guidance for 2023.
ENB stock
Enbridge trades for close to $47 per share at the time of writing. This is off the 2023 low of around $43 the stock hit in October but is still down from the 2022 high above $59.
Rising interest rates are to blame for most of the decline. Investors are concerned that the jump in borrowing costs will hurt profits and reduce cash available for distributions. Enbridge uses debt as part of its financing for acquisitions and growth projects.
The Bank of Canada and the U.S. Federal Reserve raised rates over the past two years to cool off the economy and reduce inflation. The efforts appear to be working, and economists widely expect the central banks to start cutting rates at some point in 2024.
Growth projects
Enbridge is driving growth through acquisitions and development projects. The company recently announced a US$14 billion purchase of three natural gas utilities in the United States. Enbridge also has a $24 billion capital program on the go that will boost revenue and cash flow as new assets are completed and go into service.
Oil and natural gas transmission networks remain important for the business, but Enbridge’s investments in the past few years have focused on exports, renewable energy, and natural gas distribution. These moves help diversify the revenue stream and set the business up to benefit from growth trends. International demand for Canadian and American oil and natural gas is expected to increase in the coming years as countries seek out reliable fuel sources. At the same time, solar and wind projects should ramp up with support from government incentives. On the utilities side, Enbridge is positioned to take advantage of the anticipated transition to hydrogen that will use natural gas infrastructure.
Dividend
Enbridge just announced a 3.1% dividend increase for 2024. This marks the 29 consecutive year of dividend growth. At the current share price, the new quarterly payout of $0.915 per share would provide an annualized dividend yield of about 7.8%.
Is ENB stock a buy?
Ongoing market volatility should be expected until there is clarity on the end for rate hikes, but investors seeking reliable, high-yield passive income might want to start adding ENB stock to their portfolios at this level. The 2024 guidance and dividend increase should support the share price heading into next year.
