Enbridge Inc. (NYSE: ENB)
Enbridge Inc is an oil and gas pipeline stalwart and one of the largest energy companies in North America with a market cap of nearly $95 billion. Its primary business is pipelines, which carry oil and natural gas from Canada to the Gulf Coast. The company is headquartered in Calgary, Alberta, Canada. Over time, it has continued to grow through the acquisition of other existing pipeline companies and the expansion of their projects as well.
With the looming threat of a recession, investors seem to be looking at value stocks with long-term potential, fueling the increase in mentions of Enbridge by 80% over the last day, and prompting investors to consider taking a position in the company. Shares currently trade at $42.54.
Solid financials, an extensive set of rewards to shareholders and a long-term vision make Enbridge a stock to look out for, here is an explanation of why.
Enbridge has been focused on stock repurchases this year and currently has plans to buy $1.5 billion worth of stock on the open market. This is a big win in terms of being able to return capital to shareholders.
Shareholders also enjoy a 6.2% dividend yield at the current share price; the payout consumes under 60% of Enbridge's distributable cash flow, making the dividend (and its continued growth) sustainable.
Enbridge's business does nearly $40 billion in annual revenue, and the company has paid and raised its dividend in each of the past 26 years.
In addition, the company currently expects to generate $2 billion in cash flows above what it needs to run its business, pay the dividend, and invest in its existing slate of capital investment projects.
Enbridge alone moves nearly 30% of the oil produced in North America and almost 20% of the natural gas consumed in the U.S. Their midstream operations (oil and gas pipelines) are fee-based, so demand for oil and natural gas is more important than commodity prices, which tend to be volatile.
The company also has monster yields. For comparison, the S&P 500 Index yields a scant 1.3%. The average energy stock, using iShares U.S. Energy ETF as a rough proxy, yields 2.3%. But Enbridge's yield is a relatively huge 5.8%.
To conclude the supporting arguments for its solid financials, Enbridge has an investment-grade-rated balance sheet. That means it has a sound financial foundation to support its business and growth investment plans.
These investment plans include a shift toward renewable energy, Enbridge has a small but growing clean energy business that is being supported by its carbon fuel transmission assets. The company is also looking to use some of its pipelines to transport hydrogen in the future.
Although it may seem like you can’t go wrong with Enbridge, it is very important to take a balanced approach towards your investments and consider the drawbacks of taking a position in the company right now.
Enbridge is heavily reliant on moving carbon fuels for the immediate future and might lose out to companies that have already established clean energy sources and distribution on a larger scale.
Since Enbridge is not as imminent a part of exploration and production and remains immune to oil price surges, is also not a direct way to benefit from rising energy prices.
Lastly, the company's dividend is paid in Canadian dollars, so the amount that U.S. investors receive varies along with exchange rates.
This has made Enbridge more stable than most oil companies because it's not as dependent on oil and gas prices to profit. If you can't stomach watching stocks drop, then consider buying Enbridge and shifting your focus to collecting fat dividend checks instead. Enbridge is in it for the long run and is definitely a stock to consider taking a position in given its financial strength, the power that comes with size and clean energy initiatives.
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