$5,000 In This 7% Dividend Stock: Is it the Right Move?
Dividend stocks have long been a favorite among investors looking to grow their equity over time. However, with the average stock yielding a meager 1.66%, it’s understandable why some investors might be skeptical of dividend plays. But there’s one stock that stands out from the rest – Enbridge Inc (TSE:ENB).
Enbridge, an oil and natural gas pipeline and energy company operating in Canada and the US, currently offers an impressive annual dividend yield of 7.05%. Although the stock has only seen a modest 4% increase over the past five years and has recently experienced a decline of nearly 10% from its 52-week high, it continues to attract income-focused investors due to its consistent dividend payments.
Enbridge has a solid track record of increasing its dividend for the past 20 years. As a major player in the oil and gas industry, the company’s products are in high demand and show no signs of decreasing. Furthermore, despite the stock’s relatively poor performance, ENB has historically traded with low volatility, making it an attractive option for passive income investors.
Enbridge boasts an impressive history, starting out as Imperial Oil and quickly expanding its pipeline operations after Canada’s first oil discovery. The company now employs over 11,000 workers and has a market capitalization approaching $75 billion.
Enbridge plays a crucial role in transporting approximately 30% of the oil produced in North America and 20% of America’s natural gas. Additionally, it has made significant strides in renewable energy, with this segment accounting for a substantial portion of its current revenues.
In recent years, Enbridge has solidified its position in the natural gas industry through a merger with Texas-based Spectra Energy in 2016. The company operates across four segments: Liquids Pipelines, Natural Gas Pipelines, Gas Utilities and Storage, and Renewable Energy.
Its Liquids Pipelines segment operates an extensive crude oil pipeline network, spanning over 17,000 miles across the US and Canada. This segment generates the highest revenue for Enbridge, accounting for 53% of the company’s first-quarter EBITDA of C$4.42 billion.
Enbridge’s Natural Gas Pipelines cover an impressive 73,000 miles across North America and provide 20% of the natural gas supply to the US. This segment contributed C$1.2 billion, or 27%, to the company’s first-quarter EBITDA.
The Gas Utilities and Storage segment is Canada’s largest gas provider, serving 15 million customers in Ontario and Quebec. It accounted for C$716 million of Enbridge’s first-quarter EBITDA.
Lastly, the Renewable Energy segment contributed C$136 million, or 3%, to the company’s first-quarter EBITDA.
Although Enbridge reported a decline in earnings per share compared to the same period last year, from C$0.95 to C$0.86, it saw an increase in cash from operations from C$2.9 billion in 2022 to C$3.9 billion in the first quarter of this year. The company has also reaffirmed its guidance for 2023. However, concerns remain regarding its high levels of debt.
Financially, Enbridge appears strong, albeit with an elevated P/E ratio of 42.71. This high earnings multiple has led some investors to shy away from the stock. Despite underwhelming revenues and a high valuation, 11 out of 21 analysts still consider it a buy, while the remaining 10 rate it as a hold. The most bullish forecast predicts a 30% gain with the stock reaching $48.51 over the next 12 months, while the median forecast suggests a 17.4% increase to $43.60.
Enbridge, as a well-established oil and gas pipeline company, will continue to play a significant role in the industry for years to come. While its stock has faced pressure due to slightly underperforming revenues and declining earnings per share, its appealing dividend yield remains a key factor for long-term investors seeking stability and profitability. With over 20 years of consistently increasing its dividend, a $5,000 investment in Enbridge could result in an annual payout of $350, offering a predictable income stream.
It’s important to note that investors should not solely rely on potential share price gains when considering Enbridge. Although such gains may occur, they cannot be guaranteed. However, with the company’s strong dividend track record and its position in an essential industry, it remains an enticing option for income-focused investors.
In conclusion, Enbridge’s consistent dividend payments and its position in the oil and gas industry make it an attractive proposition for investors seeking long-term stability. While the stock may be overvalued based on its high P/E ratio and its revenues may have underperformed in recent years, its enticing dividend yield should not be overlooked. As always, investors should conduct thorough research and consider their individual investment goals before making any decisions.
