Posted by Aditya Raghunath at Motley Fool Canada
After a stellar performance in the first half of 2022, Canadian energy stocks have cooled in recent months. The recent sell-off gives investors an opportunity to buy quality stocks such as Enbridge (TSX:ENB)(NYSE:ENB) at a low multiple. At the same time, you can generate income because of the tasty dividend yield.
While energy companies go through cycles, Enbridge’s unique infrastructure asset base allows it to generate cash flow throughout business cycles. Over the past two years, ENB stock has returned 358% to investors. After adjusting for dividends, the total return is close to 950%.
Despite its higher profits, Enbridge offers investors a dividend yield of 6.6%.
Is ENB a good stock to buy?
One of the largest companies in the world, Enbridge is worth $107 billion with an enterprise value of $191 billion. About 98% of its cash flow is invested in long-term contracts generated from cost-of-service contracts. These stable revenue streams make Enbridge immune to fluctuations in commodity prices.
Furthermore, 95% of its customers have credit investment standards, demonstrating the strength of Enbridge’s business model. In addition, 80% of the company’s income is included in inflation, which makes it one of the highest power factors on the TSX.
While many oil stocks around the world have suspended or reduced dividend payments during the onset of COVID-19, Enbridge has been able to increase these payments in 2020. Over the past 20 years, Enbridge shares have increased by an average annual rate of 11.6%.
If you bought $10,000 of ENB stock in October 2002, you would have bought 870 shares. These shares would have made $353 per share in the next year. Given the company’s annual dividend payout of $3.44 per share, 870 shares would increase the payout to nearly $3,000, increasing your effective yield to 30%.
Enbridge has a payout ratio of 65%, which provides ample room to maintain or increase dividends, expand its asset base, or reduce its debt profile. Earlier this year, Enbridge confirmed it had secured several expansion projects. These cash cows will help grow cash flow per share between 5% and 7% through 2024, indicating dividend increases on the cards.
What’s next for Enbridge stock and investors?
Enbridge’s extensive pipeline network is critical to North America. The company supplies 30% of the crude oil produced on the continent and supplies 20% of the natural gas used in the United States. It also serves as the third largest natural gas producer in North America by customer count.
While renewable energy will make up only 4% of total cash flow by 2022, Enbridge continues to grow its offshore wind portfolio. The transition to clean energy solutions will accelerate in the coming decades. Enbridge is well positioned to capture the tailwind and gain traction in this segment.
ENB stock has returned nearly 12% annually for investors over the past 14 years. But it continues to trade at a fair value, and the stock is valued at 18 times forward earnings. Analysts who track the company remain sell and expect ENB stock to gain 10% over the next year. After accounting for its dividend, the total return would be close to 17%.
The post 1 Canadian Energy Stock (With 6% Dividends) I Can Buy Now and Hold Forever appeared first on Motley Fool Canada.
Before you consider Enbridge, you’ll want to hear this.
Our team of market-beating analysts recently revealed what they believe are the 5 best stocks for investors to buy in October 2022 … and Enbridge wasn’t on the list.
The online investment service they’ve run for almost a decade, Motley Fool Stock Advisor Canada, beat the TSX by 16 percent. And now, they think there are 5 better stocks to buy.
Check out 5 Stocks * Returns as of 10/19/22
Fool contributor Aditya Raghunath holds positions in ENBRIDGE INC. The Motley Fool suggests that Enbridge. The Motley Fool has a whistleblowing policy.