Image source: Getty Images
Dividend stocks become increasingly attractive as interest rates fall. High Yield Dividend Stocks Like Enbridge (TSX:ENB) offer investors income that far exceeds what they could earn from bonds or fixed income investments.
Let's take a look at whether Enbridge stock is right for you.
Predictability and stability
One thing I'm not sure investors give Enbridge credit for is the predictability and security of the company's business model. The details are as follows: 98% of Enbridge's earnings before interest, taxes, depreciation, and amortization (EBITDA) come from the cost of service or contracted assets. Additionally, more than 95% of Enbridge clients are investment grade. Finally, 80% of EBITDA is protected against inflation. So, you can see here that this results in highly predictable, low-risk revenue and cash flows for Enbridge.
Since 2019, Enbridge's operating cash flow has increased 50%, while its free cash flow has increased 151% to more than $9 billion. This means there is plenty of cash left over for investors. As a result, Enbridge's annual dividend has increased 24% to the current $3.66.
Enbridge's dividend yield
Enbridge's stock price is trading at nearly $55 and yields 6.66%. Enbridge stock is the kind of high-yield opportunity we don't take advantage of very often.
Given Enbridge's predictable and defensive business, it appears its dividend is out of touch with reality. This is because, in my opinion, Enbridge's share price remains undervalued. It is not enough to highlight that Enbridge is a low-risk investment. The fact is that there has been a lot of controversy regarding oil and gas, pipelines, and the environment. This has not died easily because it still exists.
The world is still trying to move away from oil and gas. However, Enbridge is seeing record results and record demand. This is the dichotomy we find ourselves in. What is the future of Enbridge? Does it even have a future if we phase out oil and gas? Is it even realistic to think we can do that in our lifetime?
So, we are left with these questions, which certainly weigh on the valuation. And we're left with Enbridge trading at levels that make it a high-yield stock; In my opinion, without the risk that high-yield stocks typically carry.
What awaits Enbridge?
Lastly, I'd like to take a look at Enbridge's opportunities. The global shift from coal to natural gas is in full swing, and the fact that North America can now export its natural gas outside its borders has given rise to a burgeoning new opportunity.
With a growing connection to the US Gulf Coast, Enbridge is increasingly involved in the LNG industry. In its latest quarter, Enbridge acquired two docks on the U.S. Gulf Coast. This will streamline the company's operations in the area and help Enbridge's Ingleside facility become an industry-leading export terminal.
The final result
Enbridge stock is a high-yield stock that remains undervalued and undervalued. It continues to trade at just 18 times next year's earnings, but offers the stability, predictability, growth and earnings that are in very high demand.