When Canadians are building a stock portfolio to grow their hard-earned savings, typically, one of the first stocks they’ll come across in their research is Enbridge (TSX:ENB), the massive energy infrastructure stock.
Therefore, given its massive size, dominance, significant dividend yield and popularity, it’s inevitable that many Canadians will find themselves asking, “Is Enbridge stock a good buy?”
Enbridge has earned its reputation as a top TSX stock for a reason, and it’s not just because of its share price performance and impressive dividend. So, let’s look at Enbridge’s business model, growth potential, and valuation to see if it’s a good stock for investors to buy today.
Why is Enbridge an excellent business to invest in?
First and foremost, Enbridge is a massive company with a market cap of more than $120 billion. But more importantly, the services it offers – including pipelines, midstream operations, utilities, energy storage, and green energy – are essential to the functioning of the North American economy.
Furthermore, these services are not only crucial to the economy, but also help make Enbridge highly diversified, giving it numerous income streams.
This impressive diversification, combined with the essential nature of its services, makes Enbridge one of the most recession-resistant stocks on the market. Even during periods of economic downturns, the demand for energy and infrastructure persists, providing a level of stability that few companies can match.
Moreover, Enbridge’s business model is designed to be a cash-generating machine. For example, once you build a pipeline, it requires minimal ongoing maintenance year over year yet generates significant cash flow for the company every single day. This reliable income stream allows Enbridge to generate billions in cash flow annually.
With this consistent cash flow, the company can both invest in future growth to expand its operations and, most importantly for dividend investors, continue funding its growing dividend.
Therefore, over the years Enbridge has built a reputation as one of the best dividend stocks that Canadians can buy, consistently increasing its payouts over time. In fact, it currently has a dividend growth streak of 29 straight years.
Plus, as it continues to expand its infrastructure and renewable energy footprint, the company’s distributable cash flow will continue to grow, allowing it to continue to reward shareholders for years to come.
Finally, in addition to its steady income, Enbridge benefits from several competitive advantages, which is another reason why it’s one of the best stocks to buy.
First off, its size and scale allow it to operate with significant economies of scale. In addition, the industry in which it operates, particularly pipelines and energy infrastructure, also has significant barriers to entry. Furthermore, Enbridge’s strategic assets are located in key areas across North America, giving it a dominant position in the market.
Is Enbridge a good stock to buy today?
In general, Enbridge is one of the best stocks to buy and hold for the long term, especially for dividend investors seeking stability and growth. However, it’s worth noting that today, the stock may be slightly more expensive than it has been over the past year.
Nevertheless, as interest rates continue to decline, Enbridge stock should continue to see strong momentum. Therefore, the company’s impressive fundamentals, coupled with a favourable macroeconomic environment, make it an appealing investment despite its current valuation.
It’s also worth noting that even after rallying substantially these last few months, Enbridge still only trades at a forward enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio of 11.7 times today. That’s below both its 5 and 10-year averages, showing it still offers value today.
Therefore, if you have some cash you’re looking to put to work today, there’s no question Enbridge is one of the best Canadian stocks to buy, especially while it still trades below its long-term averages and offers investors a compelling yield of more than 6.5%.
