Shares of Canadian pipeline darling Enbridge (TSX:ENB) are up an impressive 23% this year, and that’s not even including the 6%-yielding dividend, which is the cherry on top and the main attraction for many income investors.
Undoubtedly, the midstream energy stocks have been feeling a wave of relief in recent years. With strong, improving fundamentals and cash flows and a still relatively muted valuation, I still think a top-tier name, like Enbridge, could have what it takes to keep delivering on capital gains and dividends.
So, if you’re looking for value and total returns (with yield doing a bit more of the lifting), and you’re enticed by the newfound momentum in names like Enbridge, perhaps August could be the perfect time to jump in.
After all, August and September tend to be months when the market’s stomach gets a bit unsettled. And in the face of a potential pullback, it’s the highest flyers that could have the most room to fall. While shares of ENB have been gaining ground, they’re lukewarm or even slightly cold on a year-to-date basis, up around 3% over the timespan.
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A big analyst just upgraded ENB stock, expects more gains ahead
Indeed, a period of consolidation can be expected for a high-flyer as investors ponder the next big move. With Enbridge stock recently winning a huge analyst upgrade from Jefferies just over a week ago, I’m inclined to view ENB stock as timely and likely headed higher as we head into the fourth quarter of the year. Indeed, midstream energy may be the place to shelter from any tech-driven hailstorms between now and the end of 2025.
So, what did Jefferies analysts say that has me so bullish? Apart from recommending the name as a buy to go with a $72 per-share price target (that works out to a gain of around 13%, not including the chunky yield), Jefferies also likes the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) growth profile and “dominance” in the Canadian energy scene.
A fair price to pay for a wonderful business?
It’s hard to argue against that, especially with Enbridge’s exceptional management team running the show. Remember that they actually kept growing the dividend when ENB shares swam through wavy waters in 2022, 2023, and the first half of 2024.
In terms of shareholder-friendly companies, it’s tough to stack up against Enbridge. Though shares aren’t as cheap today at 23.6 times trailing price-to-earnings (P/E), I’d argue that they’re also not all that expensive, given the very well-covered, towering, and growthy dividend.
Given the capabilities of management, I view Enbridge stock as priced about right. At $63 and change, you’re paying a fair price for one of the best dividends in the entire Canadian midstream energy scene. Of course, the name is not without its fair share of risks, especially if the macro environment runs into a bit of autumn turbulence. In any case, long-term investors should feel satiated by the 6% yield which, believe it or not, can still grow by leaps and bounds over the coming years!
