Enbridge Inc (TSX:ENB) is one of Canada’s most popular high yield dividend stocks. Boasting a 5.9% dividend yield, it pays buckets of cash. In the past, ENB stock paid yields as high as 7% — it was briefly possible to buy the stock at a 12% yield during the COVID-19 lockdowns. Those days are long gone, but still the 5.9% yield available today is more than double that of the TSX Index.
Although Enbridge has a very high yield, it hasn’t delivered much capital appreciation historically. In fact, today’s price is nearly a dollar lower than the price on April 19, 2015. Granted, that price was a particularly pronounced high for the stock; those who bought at other points in 2015 saw their holdings increase in value. But it goes to show what a volatile ride ENB has given investors over the years.
In this article, I explore ENB stock in detail so you can decide whether it’s a fit for your portfolio.
Source: Getty Images
Slow growth
One reason why Enbridge stock may not have appreciated much over the years is the fact that the company hasn’t grown much since its 2015 peak. The company’s revenue increased just 6% in the trailing 12-month period, although its EPS did pop by 95%. Over the last five years, it compounded its revenue, earnings, and book value at the following rates:
- Revenue: -0.3%.
- EPS: 0.3%.
- Book value: -5%.
As you can see, there was not much growth in the last five years — even negative growth in a few categories. On the bright side, this year was clearly much better than last year: in 2023, ENB’s revenue declined! But still there isn’t much growth happening over whatever timeframe you choose.
High profits
Although Enbridge is not growing much, it is highly profitable. In the trailing 12-month period, it had the following profitability ratios:
- Gross margin: 48.6%.
- Operating margin: 19.8%.
- Net income margin: 13.7%.
- Free cash flow margin: 7.9%.
- Return on equity: 10.7%.
As you can see, all of these margins/returns are positive. A few of them are quite high. The free cash flow margin is a little on the low side for the energy sector these days, but not in dangerous territory.
High dividends
Another good quality that Enbridge has is a high dividend yield. The company yields 5.9% with a 99.6% payout ratio. The high yield might be enticing but the high payout ratio means that the company pays out almost all its profit in dividends. It might not be the most sustainable dividend payout on earth.
Not exactly a bargain
One thing about Enbridge I find unappealing is the multiples it trades at. At today’s prices, ENB trades at:
- 23.9 times adjusted earnings.
- 22 times reported earnings.
- 2.8 times sales.
- 2.4 times book value.
No, these multiples are not sky-high by any means. They’re about average for the TSX Index. But recall what I wrote above about growth: Enbridge is barely growing at all; it’s even shrinking over some timeframes. I’d like to see lower multiples for this kind of performance.
My verdict? It’s a hold
Taking everything into account, I think ENB is a hold; a fairly safe but uninspiring opportunity. Those buying it will probably collect their high dividend but won’t likely see a lot of capital appreciation.
