Stock Analysis & Ideas

Enbridge (NYSE:ENB): What’s Attractive About This Oil Pipeline Stock?

Story Highlights

Enbridge remains a top dividend pick for investors and is also less exposed to the volatility in the underlying oil and gas prices.

The most attractive aspect of the global pipeline stock, Enbridge (NYSE:ENB) (TSE:ENB) is its strong dividend yield of 6.68%. In fact, ENB has been paying dividends for over a decade and has always maintained a high dividend yield of 5% or higher, on an average basis.

Headquartered in Calgary, Canada, Enbridge is the multinational pipeline and energy infrastructure company that operates the world’s longest crude oil and liquid transportation system, with about 17,809 miles (28,661 kilometers) of active pipelines.

Enbridge: A Hedge Within the Energy Sector

Despite volatility in oil prices seen in the last two years, investors are bullish on the energy sector overall. Interestingly, pipeline companies like Enbridge have an edge over oil-producing stocks. They will continue to witness stable earnings with lesser susceptibility to the volatility in the underlying oil prices.

On the downside, however, unlike oil producers, pipeline companies will not be able to reap the same upside benefits if oil prices rally again.

Crude oil hit its 20—year lows at the beginning of the pandemic to $20 levels in April 2020. However, triggered by the Russia-Ukraine crisis and the subsequent supply uncertainty, it more than quadrupled in 2 years to cross $115.  Currently, it is off 30% from its highs seen in May earlier this year and is trading at $80 price levels.

ENB stock has lost only 4.5% over the past month, with oil prices down 14.4% in the same period.

Is Enbridge a Good Stock to Buy?

As per TipRanks, analysts are cautiously optimistic about the stock and have a Moderate Buy consensus rating, which is based on five Buys and two Holds. Enbridge’s average price forecast of $44.79 implies 11.78% upside potential.

Last week, Raymond James analyst Michael Shaw upgraded Enbridge to Buy from Hold and also increased the price target to C$60 (10.72% upside potential) from C$57.

Shaw believes, “the fundamental outlook for Enbridge has only gotten better” while its “near- and medium-term growth outlook has improved while also maintaining a balanced capital allocation strategy”.

Concluding Thoughts

Enbridge continues to grow its business well. It has sanctioned new pipeline expansions and is extending its value chain with an investment in Woodfibre LNG. It is also progressing well on its portfolio of low-carbon growth opportunities.

Over and above its high dividends that represent 65% payout on its cash flows, the company also repurchased shares worth $150 million year-to-date.

All in all, Enbridge believes in rewarding its shareholders with regular dividends and repurchases and is hence a great dividend pick.

Also, ENB stock has a positive signal from hedge fund managers, who have added 50,900 shares during the last quarter.

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