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Enbridge Stock: A Reliable, High-Yielding Dividend Payer
Stock Analysis & Ideas

Enbridge Stock: A Reliable, High-Yielding Dividend Payer

Enbridge (TSE: ENB) (NYSE: ENB) is a Canadian energy infrastructure company that transports crude and other liquid hydrocarbons. The pipeline giant is also engaged in renewable power generation, gas distribution, and storage, as well as energy marketing services.

Enbridge’s Competitive Advantage

As a pipeline company, Enbridge has exposure to the oil and gas industry without having to drill or refine any products. The company transports 25% of North America’s crude, along with 20% of the United States’ natural gas.

Needless to say, it has a very large presence that would require tens of billions of dollars to replicate. That is, of course, if a company got past the regulatory hurdles of building new pipelines. As a result, there are high barriers to entry that make it difficult for new competitors to challenge Enbridge.

In addition, the company is much less cyclical than oil producers because of its take-or-pay model, which requires customers to pay a minimum fee whether they use the pipelines or not. As a result, its free cash flows are stable and predictable, unlike the vast majority of the energy sector.

Because of this, investors of Enbridge enjoy asymmetrical exposure to the energy sector with a favorable risk-to-reward ratio, where the company benefits during boom periods while remaining less impacted during bust periods.

Dividend

For investors that like dividends, Enbridge currently has a 6% dividend yield when annualized, which is above the sector average of 1.3%.

Looking at its historical dividend payments, we can see that its yield range has trended upwards in the past several years.

However, the stock price has appreciated year-to-date, which pushed its yield down to about 6%. As a result, the company’s dividend is near the lower end of its range, implying that the stock price is trading at a premium relative to the yields investors have seen in the past.

Nevertheless, a dividend of 6% is still a very solid return for income-oriented investors, as it is roughly double what investors can receive from treasuries.

Wall Street’s Take

Turning to Wall Street, Enbridge has a Moderate Buy consensus rating based on five Buys, six Holds, and zero Sells assigned in the past three months. The average Enbridge price target of $63.44 implies 11% upside potential.

Final Thoughts

Enbridge is a crucial part of North America’s infrastructure, and it enjoys a strong competitive advantage. As a result, it has stable and predictable cash flows, which allow it to pay out a 6% dividend, roughly twice the return of treasuries.

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