„Enbridge Inc.: A High-Yield Energy Stock for Dividend Investors“
Investors seeking passive income often turn to high-yield dividend stocks with a consistent payout history. In this article, we’ll take a closer look at Enbridge Inc. ($ENB), a prominent player in the North American energy sector that has demonstrated a solid track record of delivering steady dividend growth.
Enbridge Inc.: An Overview
Enbridge is a leading energy infrastructure company headquartered in Canada, with a significant footprint in the United States. The company’s core assets include a vast network of crude oil and natural gas pipelines, as well as multiple natural gas utility services that cater to a combined 5 million retail customers across both countries.
Well-managed pipeline companies are known for generating reliable dividend income. For instance, I’ve been a shareholder of Enterprise Products Partners, another high-yield pipeline business, since 2021.
However, not all pipeline companies are created equal. Some are poorly managed and have a history of cutting dividends and destroying shareholder value. Therefore, it’s crucial to evaluate Enbridge’s financial health before considering it as an investment.
Enbridge Inc.: Financial Analysis
Examining Enbridge’s NYSE-listed shares, which trade under the ticker symbol $ENB, we find that the company’s current share price stands at approximately $36.50, with an annual dividend payout of $3.66.
It’s important to note that Enbridge’s dividends are paid in Canadian Dollars. At the current exchange rate, this equates to $2.68 in USD. This distinction is significant because some financial websites may list the dividend payout in USD, implying a starting dividend yield of 9.04%. However, new investors in Enbridge can realistically expect a starting dividend yield of 7.3%.
In terms of valuation, Enbridge currently trades at a price-to-earnings (P/E) ratio of 17.21. While this is slightly higher than other pipeline companies, Enbridge’s utility businesses, which typically command a premium valuation, justify the difference. Despite this, Enbridge’s P/E ratio of 17 remains below the current valuation of the S&P 500.
Enbridge boasts an impressive dividend history, having paid dividends to shareholders for 69 consecutive years. The company has also achieved a long-term compound annual dividend growth rate of 10% over the past 29 years. Enbridge is committed to maintaining a conservative dividend growth strategy, as stated on their website:
„Our dividend growth has not compromised our financial strength. We aim to maintain our dividend payout ratio within our target range of 60-70% of DCF (Distributable Cash Flow), striking a balance between returning income to shareholders and retaining income for investment in new growth opportunities.“
There are a couple of factors to consider regarding Enbridge’s dividend payout. Firstly, the company pays dividends in Canadian Dollars, which means non-Canadian investors will be subject to fluctuations in the exchange rate.
Secondly, non-Canadian investors will be subject to a „Non-Resident Withholding Tax“ of 25% on their dividend payments. However, this withholding can usually be claimed as a tax deduction, or investors could potentially enhance their returns by selling covered-call options.
The Verdict: Is Enbridge Inc. a Worthy Investment?
In my view, Enbridge presents an attractive investment opportunity. The company offers a strong starting yield and a history of robust long-term dividend growth. Furthermore, Enbridge’s stock price has recently experienced a decline due to concerns surrounding interest rates and geopolitical tensions. If the stock price were to drop below $33, new investors could potentially secure an 8.1% starting dividend yield.
While I’m open to investing in Enbridge at its current price, I’ll also be keeping some cash reserves in case the stock price dips further, pushing the starting yield into the 8% range.
Disclaimer: This article is intended for informational and entertainment purposes only and should not be construed as financial advice. Always conduct your own research before making investment decisions.