Enbridge Inc. (TSX:ENB) has many things going for it these days. Yet, if you take a look at Enbridge stock’s price graph and valuation, you would not know it. Why does this disconnect exist, and is this a great buying opportunity?
Let’s look into this.
Enbridge stock has gone nowhere
As one of North America’s leading energy infrastructure giants, Enbridge has a clear purpose – to provide our homes and businesses with the energy needed to keep them functioning. This is no easy task, and one that requires big investments.
But at the end of the day, Enbridge has been fulfilling its purpose with success. This is reflected in Enbridge’s results. 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. Yet, as we can see in Enbridge’s stock price graph below, this has not been recognized by investors.
Make no mistake – natural gas demand is growing. Population growth, artificial intelligence data centres, and liquified natural gas (LNG) growth are all driving this. The challenges facing Enbridge as a result are intensifying. But so are the opportunities.
Natural gas: An energy source of the future
I think that no discussion of Enbridge would be complete without discussing the bullish natural gas opportunity. In this section, I’ll discuss one – the switch from coal to natural gas.
While it’s widely accepted that fossil fuels are high on carbon emissions, natural gas’ role is less understood. You see, although natural gas is a fossil fuel, it is “cleaner” than most others, such as coal. Yet, too many coal plants still exist in North America and especially globally. And natural gas is a viable solution. 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.
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 help Enbridge’s Ingleside facility to become an industry-leading export terminal.
Enbridge stock is attractively valued
Along with the solid cash flow that Enbridge has consistently generated over the years, the company has also paid out a generous dividend that has increased nicely over the years. In fact, in the last five years, Enbridge stock’s annual dividend has increased 24% to the current $3.66.
Enbridge stock trades at a 7.7% dividend yield and at low valuations. It’s trading at 16 times this year’s consensus earnings and 15 times next year’s. This is the case despite the company’s low-risk, predictable cash flow profile, and status as an essential business. In my view, there should clearly be more of a premium on this type of a business.
The company beat expectations last quarter by a significant margin, and its outlook remains strong.
The bottom line
In closing, without hesitation, I would recommend loading up on Enbridge stock at this time due to the factors I discussed in this article.
