As Enbridge Inc. (TSX:ENB) continues its climb higher, let’s take a look at where the company is at today. Up 18% so far this year, Enbridge’s stock price is reflecting the positive realities that the company is benefitting from. After a move like this, investors may want to revisit this stock in order to determine if this is the right opportunity for their portfolios.
Is it still a good time to buy Enbridge stock?
An impressive dividend history
An evaluation of Enbridge stock would not be complete without considering its high dividend yield. In fact, Enbridge is currently yielding a very generous 6.4%, putting the stock into the high-yield category. This yield is backed up by management’s commitment and a strong track record of annual dividend increases.
Over the last 10 years, Enbridge’s annual dividend per share has increased 163% to the current $3.68. This equates to a compound annual growth rate of more than 10%. Furthermore, Enbridge has a 29-year track record of dividend increases, which management is committed to extending.
Enbridge stock: An increasingly defensive choice
For those of us who are looking for a more defensive stock, Enbridge increasingly falls into this category. The company’s 2023 acquisition of three U.S. gas utilities from Dominion Energy have closed. These acquisitions add low-risk, regulated revenue streams to Enbridge, adding greater stability to the company and further de-risking its growth outlook.
Today, Enbridge offers investors an investment opportunity that’s backed by a low-risk business model. This is reflected in the fact that 98% of the company’s cash flow is generated from long-term, cost-of-service or take-or-pay contracts. Cost-of-service contracts are contracts that charge the client for the actual cost of the service plus an additional percentage. A take-or-pay contract is an agreement for future purchases. With this agreement, the buyer takes the product or pays a penalty to the supplier if they don’t.
Enbridge’s low-risk business model is also reflected in the fact that its customer base is 95% investment grade, and 80% of its earnings before interest, taxes, and depreciation is inflation-protected.
Gas utilities expose Enbridge to low-risk growth
Upon closing of all three of Enbridge’s U.S. gas utilities, the company’s gas distribution business became the largest natural gas utility in North America. This positions Enbridge and its stock price for strong long-term growth. The business is supported by expected population growth, the data centre opportunity, and the fact that it’s fully regulated. It has an attractive return on equity profile and operates in natural gas supportive jurisdictions.
LNG and renewables
With a growing connection to the U.S. Gulf Coast, Enbridge is increasingly participating in the LNG industry. For example, Enbridge is seeing growing volume demand at its Ingleside export facility. As a result, the company is expanding its pipeline capacity to fulfill this strong demand.
Another growing opportunity for Enbridge is in the renewables space. Enbridge is increasing its involvement in this space and has numerous new wind and solar projects backed by long-term purchase agreements. Enbridge’s interconnected network is ideal to meet the increased renewables demand from interested parties, such as hyperscalers. According to management, early discussion with potential data centres is expected to result in future growth for Enbridge.
The bottom line
Enbridge can be expected to continue growing at a steady and reliable rate. I think investors can feel safe buying Enbridge stock for its defensive profile, strong dividend growth, and positive long-term outlook.
