If there’s one dividend stock that seems to have been the go-to for investors over the last few decades, it has to be Enbridge (TSX:ENB). The pipeline company is one of the Dividend Aristocrats that seems to remain completely focused on increasing dividends. However, are dividends enough?
Returns since 2018 haven’t been as great. In fact, shares of Enbridge stock are up 9% since 2018. That’s just 9%. So if you had invested $5,000 in 2018, you would have $5,450 before counting dividends. But could that change? Let’s see what analysts and the company are saying these days.
A dividend player
Enbridge stock, as mentioned, has been attractive for dividend investors for years. The company is a leader in oil and gas, with a focus on dividend payments to give cash back to shareholders. And recently, management announced its financial guidance for 2024, and hopes to see continued growth.
The company believes it will see its base business earnings before interest, taxes, depreciation and amortization (EBITDA) grow by 4% this year, with distributed cash flow rising by 3% as well. That growth should certainly go right back into dividend growth, as the company has done for the last 29 consecutive years.
Right now, that dividend yield is at a strong 7.37%. Over the past five years alone, the dividend has increased by 12%. Yet as you’ll see, that’s far higher than what we’ve seen from returns. So is it worth your investment?
Analysts weigh in
There have been a few announcements lately that have caused analysts to return their attention to Enbridge stock once more. For instance, Enbridge stock announced it would sell a 50% interest in Alliance Pipeline to Pembina Pipeline (TSX:PPL) for $3.1 billion. This provides the stock with even more cash flow predictability.
And this remains on top of the company’s already strong network of assets. Yet there has been a bit of a question mark surrounding the renewable energy transition and whether Enbridge stock can keep up. Some analysts believe there is in fact an opportunity to be had, with the focus on renewable natural gas and other renewable energy sources.
For now, analysts believe the cash flow profile looks predictable, with secured growth coming the company’s way. Yet that predictability could mean more of the same, which could include lower returns. Especially if investors remain wary about the future of the company.
What now?
So what should investors do with Enbridge stock right now? Honestly, it looks like it’s going to be business as usual at least for the next year or so. There haven’t been so many movements that we’re going to suddenly see the stock share price climb significantly.
What’s more, while we will likely continue to see dividend increases, that payout ratio looks a bit risky at 234% as of writing. Not that there’s likely to be a dividend cut after 29 years, but the stock is unlikely to suddenly see a major investment into new renewable energy projects during this interest rate environment.
So if you want a dividend and pretty much that’s it, Enbridge stock is for you. But otherwise, I’m not sure I would invest for returns on the TSX today.
