Canada’s headline stock market is a lucrative investment ground, as evidenced by the S&P/TSX Composite Index’s positive returns in seven of the last 10 years. The financials, materials, and energy sectors comprise 60% of the market’s total weight, with technology fast rising in popularity.
However, a name that crops up every time and investors must pay attention is Enbridge (TSX: ENB). The top-tier Canadian energy stock is a top-of-mind choice for North American investors. Also, the $119.5 billion pipeline and energy company is TSX’s fourth-largest company by market capitalization.
But is now the right time to invest or take a position in the industry heavyweight? Some market analysts raise concerns about Enbridge’s debt levels. Nevertheless, the pros outweigh the cons. I can cite three reasons why Enbridge is a buy today.
Image source: Getty Images
Falling interest rates
Falling interest rates are tailwinds for stocks and will reduce companies’ debt expenses, regardless of sector. The Bank of Canada (BOC) has lowered its policy rate three times this year. On September 23, 2024, BOC governor Tiff Macklem said it is reasonable to expect more rate cuts.
The central bank’s inflation target range is 1-3%, and the consumer price index fell to 2% in August, the lowest since February 2021. According to Macklem, the policymakers had already achieved at least some of its main goals. “The timing and pace will be determined by incoming data and our assessment of what those data mean for future inflation,” he added.
Outperforming stock
As of this writing, 10 of the TSX’s 11 primary sectors are in positive territory. Only the communications services sector is in the red zone. The broad market is up 14.28% year to date, while energy’s is +11.21% (seventh-best performer). However, Enbridge outperforms both the TSX and the energy sector. At $54.98 per share, Enbridge’s market-beating return is 21.58%.
In the second quarter (Q2) of 2024, earnings were flat at $1.84 billion compared to Q2 2023, while distributable cash flow (DCF) increased 3% year over year to $2.85 billion. Greg Ebel, president and chief executive officer of Enbridge, said, “During the quarter, we made significant progress on our strategic priorities. The scale and connectivity of our business are extending growth opportunities across our four business franchises.”
Ebel added that disciplined capital allocation remains management’s key area of focus. He also mentioned that the positive credit ratings agency confirms a strong balance sheet. More importantly, Ebel assures Enbridge’s leverage is within the target range. The company can fully fund its $25 billion secured capital backlog.
Outsized dividend
The outsized dividend is the third compelling reason to invest in Enbridge. If you invest today, the dividend yield is 6.67%. In addition to the nearly seven-decade dividend track record, the large-cap stock is a Dividend Aristocrat owing to 29 consecutive years of dividend increases.
Enbridge’s financial stability stems from the diversified low-risk pipelines and utility-like earnings. Last, Ebel said, “A well-supported dividend and visible growth is expected to deliver low double-digit annual shareholder returns for many years to come, which positions us as a first-choice investment opportunity.”
