It didn’t take long for the S&P 500 and TSX Index to surge to new all-time highs. Even if the conflict in the Middle East is ongoing, the market seems to think it is only a matter of time before the war in Iran ends. Of course, it might not take long before talks of an oil shock are back on the table should things escalate drastically. That said, I do think that the odds of a resolution and a further dip in oil prices are getting higher by the day.
And, with that, I don’t think there’s any stopping the broad markets from making up for lost time, especially as the AI trade looks to get right back into the driver’s seat. When it comes to high-conviction stocks, there are plenty of options to consider on the TSX Index, especially if you’re more of a value-conscious dividend investor. While there’s more growth and upside south of the border, I still think that the yields in Canada are tough to pass up.
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Enbridge stock looks like a great buy on weakness
And in this piece, we’ll look at shares of Enbridge (TSX:ENB), a fantastic name that I think might be shaping up to be a terrific buy into weakness. The stock is down just shy of 5% from its recent high, and while the energy sector is under quite a bit of pressure, I do think that the midstream (pipeline) players ought to be spared, especially Enbridge, which continues to operate at a high level with impressive earnings clarity in the coming years.
Sure, investors might be shying away from energy after the hot start to the year, but the pipeline plays are a different kind of energy play, one that shouldn’t be moved all too much by a drastic downside in the price of oil.
An oil spike isn’t going straight to the bottom line of the firm since it’s a service (transporting energy) provider rather than a producer of the commodity. Either way, I think any sector-wide sluggishness that gets to shares of ENB is more of a longer-term buying opportunity for investors who want a large, growing dividend.
It’s a cash cow with more dividend hikes to come
With a multi-decade dividend growth streak and some impressive cash-flow-generative projects on both sides of the border, I like Enbridge’s footing as the AI boom continues to play out. The gas pipeline business in the U.S. stands out as quite compelling, especially as the firm looks to become more of a steady utility-like dividend titan with every deal it makes. Given the data centres coming online, I’d argue U.S. gas utilities are the place to be for a solid risk/reward.
At the end of the day, Enbridge is a $158 billion dividend heavyweight, and as it looks to serve data centres with natural gas transmission, I see the dividend growth streak continuing strong for many years to come. The big upside, in my view, is what happens if more big-tech firms look to team up with the energy transportation juggernaut as it continues to expand into renewables. Sure, green energy represents a sliver of the pie today, but in 10 years’ time, I do think it’ll be another pillar of steady growth.
At just 22.4 times trailing price-to-earnings (P/E), with a 5.3% dividend yield, perhaps dividend seekers looking for a deal might wish to keep watch as ENB stock passes the halfway point to a correction while the rest of the market starts really heating up.
