Shares of Enbridge (TSX: ENB) may have been breaking out in recent weeks, now up close to 10% year to date, but the dividend yield remains far more bountiful than most other dividend payers at fresh all-time highs. Undoubtedly, most of the nearly 6% yielders are down a great deal from their highs or are lacking in upside momentum (perhaps a sideways consolidation channel). Either way, ENB stock looks like a timelier buy now that it’s broken above the $72-per-share mark, even if the dividend yield is close to the lowest it’s been in recent memory.
When it comes to the nearly $160 billion pipeline behemoth, it’s all about that growing cash flow and the dividend-growth potential. With energy transportation as a major bottleneck in the AI boom, perhaps Enbridge is a name that could stand out as a relative value buy with strong tailwinds at its back. Of course, the breakout moment was over a year in the making after shares of ENB trailed the heated TSX Index. Now that Enbridge stock joined the party, the natural question is, how high can ENB stock’s latest rally take it?
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Enbridge stock looks fully priced, but there might still be upside ahead
Today, shares trade at 22.5 times trailing price to earnings (P/E). That’s expensive by Enbridge standards. But new projects make for a rather predictable growth trajectory. And, with that, predictable dividend raises. When it comes to the Steady Eddie dividend payers, you can’t really ask for much more than a high degree of predictability, especially in a time of great uncertainty.
Given the heightened volatility in the markets due to AI, its disruptive impact on various parts of the economy, as well as the high levels of CapEx needed to get there, I’d argue that it’s not just a supercharged yield that’s becoming worth its weight in gold; it’s predictability and relative stability.
As choppy as ENB stock has been over the years, the 0.85 beta makes the stock a nice place to be as AI anxiety sends shockwaves through the broader markets. With massive cash flow visibility, Enbridge is basically a utility-like cash cow at this point, and, with that, shares deserve a nice premium, in my view, one that might not be baked in quite yet.
Of course, a nearly 23 times trailing P/E is already a high price tag, especially for a steady pipeline play. However, in a climate where investors fear AI, rather than grow euphoric over it, I think the price of admission is more than fair. Arguably, it might be cheap, given that AI is making predictability harder.
The bottom line on ENB stock
Up ahead, look for Enbridge to keep inking deals with the hyperscaler giants while continuing to make progress on its pipeline projects (expansions will drive delivery volumes and cash flows). While Enbridge remains one of the most respected dividend growers in the TSX Index, I would opt to play the long game with the name. If there’s a bump in the road, perhaps a chance to get a 6% yield will be in the cards.
