Is it Too Late to Buy Enbridge Stock?

Enbridge (TSX: ENB) is among the largest companies in Canada and has created significant wealth for shareholders. In the last 25 years, ENB stock has returned 526% to shareholders, much higher than the TSX index gains of 225%. However, after accounting for dividend reinvestments, Enbridge stock has returned an emphatic 1,720% to shareholders.

As past returns don’t matter much to current or future investors, let’s see if Enbridge can continue to deliver outsized gains to shareholders. In this article, I’ll explore if it makes sense to invest in Enbridge stock at the current valuation.

An overview of Enbridge

Enbridge is a diversified energy infrastructure company valued at $110 billion by market cap. It operates the largest liquids pipeline system in North America, transporting 30% of the crude oil produced on the continent and 20% of the natural gas consumed in the U.S.

Last year, Enbridge disclosed plans to acquire three natural gas utilities from Dominion Energy for $19 billion. Once the acquisition will be completed, Enbridge will be North America’s largest natural gas utility.

In recent years, Enbridge has been investing heavily in clean energy with a growing offshore wind portfolio. Its renewable energy capacity stands at 5.3 gigawatts, which is enough to power almost four million homes.

Is Enbridge stock a good buy right now?

Despite a challenging macro environment, Enbridge increased its EBITDA (earnings before interest, tax, depreciation, and amortization) by 11%, while distributable cash flow (DCF) rose by 4% year over year, primarily due to strong asset performance across business verticals.

Enbridge emphasized its business risk supports a leverage target of between 4.5 times and five times. The company is hedged against interest rate volatility, with less than 5% of its debt portfolio exposed to floating rates.

Moreover, the energy heavyweight is virtually immune to commodity price exposure as more than 98% of its earnings are generated from cost of service or take-or-pay contracted assets. Further, around 80% of its EBITDA is derived from assets that are protected against inflation.

Enbridge expects the artificial intelligence megatrend to be a tailwind for energy companies. According to Enbridge, the explosion of generative artificial intelligence models globally has led to the growing demand for natural gas.

As the sector evolves, Enbridge is poised to serve the increased demand through its asset footprint, which connects key supply basins. In fact, Enbridge’s asset base can offer customers access to power by fueling natural gas generation and renewable power, unlocking another revenue stream for the energy behemoth.

A growing dividend yield

Enbridge has raised its dividends for 29 consecutive years, a remarkable feat for a cyclical company. In this period, Enbridge’s dividend payout has risen by 10% annually. Enbridge ended the first quarter with a distributable cash flow per share of $1.70, up 8% year over year. Comparatively, it pays shareholders a quarterly dividend of $0.92 per share, translating to a sustainable payout ratio of 54%.

Enbridge currently offers a tasty dividend yield of 7.3% making it very attractive to income-seeking shareholders. Priced at 17.4 times forward earnings, Enbridge stock trades at a reasonable valuation and is priced at a discount of 7% to consensus price target estimates. After adjusting for dividends, ENB stock might return close to 15% in the next 12 months.