Canadian investors are likely pretty over Enbridge (TSX:ENB) when it comes to returns. The stock has been stagnant when it comes to its share price for years now. Since 2018, shares of Enbridge stock have hardly moved beyond $50 per share. But the thing is, there are some reasons to keep watching the stock. In fact, even some reasons to consider buying it if you’re a long-term investor.
Today, let’s look at what’s been happening with Enbridge stock to cause all these issues and what could happen to turn the stock around.
What happened?
There are a number of reasons that all add up to the company seeing hardly a move in share price. First off, Enbridge stock, along with other oil-related stocks, experienced a correction after a surge in 2021-2022 due to the pandemic recovery and the energy crisis. This correction was somewhat expected after a significant price increase.
Then there was the price of oil itself. Enbridge stock derives a significant portion of its revenue (around 57%) from oil pipelines. When oil prices go down, the demand for pipeline transportation often weakens, impacting Enbridge stock’s profitability. Furthermore, the broader market trend suggests a potential decline in oil demand in the long term due to the shift towards renewable energy sources. This could negatively impact Enbridge stock’s future growth prospects for its core oil pipeline business.
Add to all this that rising interest rates generally put downward pressure on stock prices, especially those of companies with high debt levels, like Enbridge. Then, the recent acquisition of three American gas utility companies for $19 billion might have caused some investor concern. While it expands its portfolio into gas utilities, it also increases debt and could take time to show positive returns.
So, why buy?
Despite all this, there are certainly reasons to consider Enbridge stock — especially if investors are considering some fixed income that really won’t go anywhere, even with so much debt on hand.
With the recent stock price decline, some investors might see Enbridge as a value play. The stock might be undervalued compared to its future potential, especially if oil prices rebound or their diversification efforts pay off.
Speaking of diversification, while oil pipelines are a core part of its business, Enbridge stock is actively diversifying into other areas like natural gas utilities and renewable energy projects. This diversification can help mitigate risks associated with fluctuations in the oil and gas market. Meanwhile, there will still be a need for pipelines to transport oil and gas for the foreseeable future. Enbridge’s extensive infrastructure network positions them well to capitalize on this ongoing demand.
Finally, Enbridge stock’s business model generates consistent cash flow due to the fee-based nature of its pipeline operations. This steady cash flow allows it to support its high dividend payouts and potentially invest in future growth opportunities. And that dividend is quite high, currently at 7.48% as of writing!
Bottom line
So, yes, there are multiple issues with Enbridge stock. And long-term investors may even be a bit wary. But the company has a long history of increasing dividends, currently at 28 years! And even if shares remain where they are, the company could be a great investment for the fixed income of dividends alone. Yet, as always, make sure this stock fits in with your investment portfolio and discuss it with your financial advisor.
