There are few stocks in Canada that are as widely held by income investors as Enbridge (TSX:ENB). And while part of the reason for that view is Enbridge’s quarterly dividend, it also has something to do with where Enbridge stock is heading.
Enbridge is an energy sector behemoth that’s built around cash flow, long-term demand, evolving energy infrastructure and yes, that dividend.
That combination makes Enbridge an intriguing option for investors, but not in the same light as some of the high-growth stocks on the market.
Enbridge stock is more of a complete package, offering investors a mix of growth and income. That’s why prospective investors should focus less on any explosive upside and more on cash flow, dividends, and infrastructure growth.
Source: Getty Images
What makes Enbridge stock a defensive holding
Enbridge generates the bulk of its revenue from its massive pipeline business, which includes both natural gas and crude segments. The company transports massive amounts of both each day.
Specifically, Enbridge transports one-third of all North American-produced crude and one-fifth of the natural gas needs of the U.S. market. To say that this makes Enbridge a top defensive holding would be an understatement.
And that’s not all that Enbridge does.
The company also operates a growing renewable energy segment. That business includes over 40 facilities located across North America and Europe, which generate another recurring income stream for the company.
Speaking of regulated, Enbridge also operates one of the largest natural gas utilities in North America. This provides yet another regulated and defensive source of revenue for the company.
Where will Enbridge’s growth come from in the future?
Enbridge’s diversified energy business makes it more of an energy toll-road business or utility rather than a direct bet on oil prices. In fact, Enbridge’s pipeline business charges for use of the network, and not by the price of the commodity hauled.
That defensive appeal and scale matter.
Over the next three years, Enbridge’s growth is likely to come from putting new projects into service from its multi-billion-dollar backlog. Those projects represent both upgrades to existing systems as well as new projects.
So then, where will Enbridge stock be in three years? Enbridge has always been less about growth and more about execution. The company operates a massive portfolio of profitable assets, most of which are bound by long-term regulated contracts.
Bringing more renewable facilities and pipelines, and upgrading existing facilities will bring in more revenue for the company.
Enbridge stock is built around steady income
One of the main reasons why investors keep turning back to Enbridge stock is for the company’s quarterly dividend. Enbridge has paid dividends to investors for seven decades without fail, making it one of the most impressive streaks in Canada.
Even better, the company has provided annual upticks to that dividend consecutively for over three decades. This makes the stock a stellar buy-and-hold candidate even before that future growth is taken into consideration.
As of the time of writing, Enbridge offers a yield of 5%, making it one of the better-paying options on the market.
Where could Enbridge stock be in three years?
Over the trailing 12-month period, the Enbridge stock price has surged by over 22%. In three years, Enbridge stock could continue that growth trajectory, provided that the company continues to grow its cash flow and complete its major projects.
Enbridge isn’t going to double overnight or record the stellar growth that investors have grown accustomed to in the tech sectors.
And that’s OK.
Enbridge is a mature energy infrastructure company that operates more like a utility or toll road. The company’s results are consistent and reliable. And perhaps more importantly for income investors, the dividend is covered, predictable and still growing.
For long-term investors, Enbridge stock is best suited for those who seek cash flow and exposure to energy infrastructure. It is not the most exciting stock on the TSX, and it doesn’t need to be.
Over the next three years, the best-case outcome is steady income, moderate growth, and a stock that quietly keeps moving in the right direction. That fact alone makes this a great addition to any well-diversified portfolio.
