As one of North America’s leading energy infrastructure giants, Enbridge (TSX:ENB) is in the sweet spot today. The company’s established position in the traditional energy grid, mixed with its new investment in emerging energy sources, has positioned Enbridge’s stock price for success.
Let’s take a look at the three main reasons to buy Enbridge stock today.
Enbridge stock’s 7.75% dividend yield
There’s nothing like a high-yield stock that has the cash flows, financial strength, and stability to back it up. This is what we have in Enbridge stock.
You see, in Enbridge, we have a 7.75% dividend yield that’s backed by earnings before interest, taxes, and depreciation (EBITDA) of approximately $17 billion. It is this strong earnings and cash flow profile that has allowed Enbridge to continue to increase its dividend year after year.
In fact, Enbridge’s has a 29-year history of consecutive dividend increases. Since the year 2000, Enbridge’s annual dividend per share has increased over 1,000% to the current $3.66. That’s a very healthy 11% compound annual growth rate (CAGR).
Enbridge rakes in the cash flows
We also have a dividend that’s backed by a predictable business that is both reliable and growing. This has led to steady, consistently growing cash flows.
You see, Enbridge’s cash flow profile is diversified across its different businesses, and this lowers its risk profile. 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). This also lowers Enbridge’s risk profile.
Finally, Enbridge continues to grow, and in its growth, the company is maintaining its conservative business model. For example, its 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 to further position Enbridge for the energy transition.
The future of energy
With this backdrop in mind, let’s turn now to the last reason that I think you should buy Enbridge stock today — its strategic moves into future growth areas. These areas, such as liquified natural gas, storage, and wind power, all serve to secure Enbridge’s competitive position in the future energy landscape.
By using its infrastructure, its connections, and its prime position in the energy infrastructure industry, Enbridge is effectively securing its competitive positioning.
The bottom line
Given all of this, Enbridge’s stock price underperformance is unjustified, in my view. This is what makes it a stock to buy like there’s no tomorrow. There have been many uncertainties and risks in the last few years, such as climate change, rising interest rates, and general political movement away from fossil fuels, but Enbridge has survived and continues to thrive. This has been an example of the company’s resilience and the essential nature of its business.
Enbridge will be reporting its fourth quarter and year-end results this week, on February 8. Expectations are for earnings per share of $0.68 in Q4 versus $0.63 in the same quarter last year.
