June saw optimism brewing in the energy space as Canadian investors are hopeful the new Prime Minister will reach an agreement with the United States. Deal or no deal, Enbridge (TSX:ENB) is a no-brainer energy stock you could consider buying anytime.
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Why is Enbridge a no-brainer stock to buy?
Canada is the fourth-largest oil producer and fifth-largest natural gas producer in the world. It exports most of its output to the United States, accounting for 20% of Canada’s exports. Enbridge facilitates this trade with its pipeline infrastructure.
The company is strategically important to the Canadian economy, as it transports 30% of the crude oil produced in North America and 20% of the natural gas consumed in the United States. These numbers show Enbridge is a low-risk stock because Canada’s economy depends on its pipelines.
Enbridge collects toll money depending on the volumes transmitted through its pipelines. Higher volumes are transmitted during winters as more natural gas is consumed for heating. Hence, you may see seasonality in its stock price in the fourth and first quarters. This stock is a buy in June before the seasonal rally kicks in.
How secure is Enbridge’s EBITDA
Over the years, Enbridge has been increasing and diversifying its cash flow by adding new pipelines, and building renewable energy projects, and gas utility and storage facilities. It has expanded organically and through acquisitions, the latest being the acquisition of three US gas utilities in 2024.
After adding up all projects, the energy infrastructure firm has over 200 asset streams and businesses that generate steady cash flows. The company reports the cash from these assets as adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
- 80% of its EBITDA is protected against inflation, which means the toll rates are revised annually.
- 98% of EBITDA is regulated or in take-or-pay frameworks.
Can the pipeline stock continue to grow dividends?
As Enbridge knows how much cash it will get from pipelines, it allocates the money to service debt, pay dividends, and reinvest in the business. The company only invests capital in low-risk projects, depending on the economic and regulatory environment, and those that have accretive cash flow. This ensures timely execution and a better return on investment.
Project delays tend to burn cash. One example of a cash burn is TC Energy’s Coastal GasLink pipeline, which went way over budget from the initial estimate of $6.6 billion to the final cost of $14.5 billion. The company had to put in $3 billion from its pocket in 2022, which pulled down its share price.
Enbridge faced no such delays and overbudgets as it only undertakes projects when it knows the cash will flow in and execution will be smooth. Thus, it has managed to meet or exceed its financial guidance for the last 20 years and expects to continue this trend in 2025, too.
For 2025, it expects
- Adjusted EBITDA to grow by 9.4% to $19.7 billion, and
- Distributable cash flow (DCF) to grow by 1.8% to $5.70 at the midpoint.
Enbridge will allocate 60%–70% of the 2025 DCF towards dividend payments in 2026. The 2025 DCF is expected to improve with US interest rate cuts and the strengthening of the US dollar against the Canadian dollar.
What to expect from this stock?
You could invest in Enbridge stock to reduce your portfolio’s downside risk as its stock price is less volatile, with a beta of 0.87 (Beta measures the stock’s volatility against the market, which has a beta of 1.0.). ENB is a defensive stock that can provide dividend payouts even in a crisis.
ENB is a good stock for retirees looking for inflation-adjusted passive income. The company has been increasing its dividends for the last 30 years. It expects to increase them by 3% annually till 2026 and by 5% from 2027 onwards.
In summary, Enbridge is a no-brainer stock you can buy anytime and lock in a 6% yield.
