Is Enbridge Stock a Buy in 2024?

Enbridge stock has stalled in the last five years, but strong and growing demand should make 2024 a solid year.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published May 14, 2024 3:45 pm EDT

| More on: ENB

Thus far, 2024 has proved to be a year of strong stock market returns despite the many risks that are out there. Despite this, I think that a focus on stable, defensive stocks would be advisable. This leads me to Enbridge Inc. (TSX:ENB). Over the past five years ago, Enbridge’s stock price has been flat, but the fundamentals have kept improving.

Is it a buy in 2024?

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Enbridge: Consistency, growth, and reliability

The very nature of Enbridge’s business is one that generates steady and predictable cash flows. This can be seen in Enbridge’s results, both in the long term and short term. In fact, since 2019, Enbridge’s net income has increased almost 10% to $5.8 billion and its cash flow from operations has increased 50% to $14 billion.

Let’s turn now to dividends, which are well supported by Enbridge’s low-risk, predictable cash flow. Enbridge’s dividend has grown annually since 2004. Also, since 2004, Enbridge’s stock price, alongside its dividend, has grown at a compound annual growth rate (CAGR) of 12%.

Looking ahead, I expect that this strong performance will continue in 2024 and beyond. Here are my reasons.

Natural gas demand remains high

In the grand scheme of things, natural gas remains essential to power our homes and our businesses. This has not, and will not change, even as we attempt to lower carbon emissions. Because as a relatively cleaner fuel, natural gas plays an important part in emissions reductions.

Furthermore, there are two new and emerging sources of natural gas demand. The first is liquified natural gas, or LNG, demand. LNG has made it possible to export our natural gas abroad, and demand from places like Asia is high. The global push to reduce emissions has resulted in strong demand for North America’s natural gas, as coal plants continue to close and natural gas is replacing them.

Finally, artificial intelligence (AI) is expected to create another source of demand for energy. Natural gas demand is expected to be boosted significantly, as AI data centres emerge. It’s estimated that this could increase electricity demand by as much as 20% by 2030. Natural gas is expected to supply 60% of power demand growth from AI and data centres.

Enbridge is well-positioned in both growth areas

With a growing connection to the U.S. Gulf Coast, Enbridge is increasingly participating in the LNG industry. In its latest quarter, Enbridge acquired two docks in the U.S. Gulf Coast. This will optimize the company’s operations in the area and will help Enbridge’s Ingleside facility to become an industry-leading export terminal.

Also, in Enbridge’s latest quarter, the company closed its acquisition of East Ohio Gas. This acquisition of this utility gives Enbridge increased exposure to the increased demand that is expected in the next few years. It also further diversifies Enbridge’s business, extends its growth outlook, and enhances the stable cash flow profile of its asset base.

Attractive valuation

At this time, Enbridge stock is trading at roughly 17 times earnings. Also, it trades at a dividend yield of 7.3%. I view the company’s dividend as well-covered, predictable, and reliable. I think Enbridge stock is definitely a great buy in 2024.