Almost all stocks go up and down over the course of their “lifetime,” but the pace at which this happens varies greatly. Some stocks, especially the more volatile ones, may rise and fall quite sharply, while others take their time, even when they are responding to external trends and movements.
One good example of these relatively slow movers (most of the time) is Enbridge (TSX:ENB), the energy giant of Canada and one of the largest pipeline companies in the world.
Unless the bear market trend is triggered by something sudden like a market crash, most of its slump and subsequent recoveries have been relatively slow and gradual. One side effect of this “pace” is that even small changes, like a 1.6% uptick, might signal the beginning of a trend instead of just the usual fluctuation.
The stock movement
Enbridge’s performance this year has been cyclical, with no sharp movements. It’s recovering from a slump pushing its value down 8% in roughly 40 days.
Neither the falls nor the rises are significant enough (from a capital appreciation perspective) but they do have an impact on the yield, so even if you are planning on buying Enbridge purely for its dividends, buying it during a slump or recovery can give you a slight edge.
Right now, Enbridge is offering dividends at a juicy 7.5% yield. The price-to-earnings is at a relatively healthy level as well. Assuming the stock mimics the last bullish trend, it will most likely tap out after gaining around 7 to 10 percent.
One reason why it’s unlikely that the small rise may indicate the beginning of a long-term bullish phase is low energy demand, particularly oil. Natural gas spot prices are also not showing a powerful enough rise to act as a positive external trigger.
Limited downside
Even if there isn’t a lot of upside to the Enbridge stock right now, especially if you are looking for capital appreciation potential, there is also very limited downside. The dividends are reason enough to consider Enbridge, especially when it’s discounted and on the verge of a recovery phase (regardless of its length), which promises that you might get at least some growth with your dividends.
As a midstream giant, the stock may not be affected harshly by slow demand or even a demand slump, especially if it’s short-term.
Foolish takeaway
Assuming the modest growth pace holds, Enbridge will likely be a good buy, especially in the early days of July. It’s already one of the best energy stocks you can buy for its dividends, and buying it at the right time may help you accumulate some short-term growth and lock in a decent yield, enhancing its dividend return potential.
