Enbridge (TSX:ENB) is a popular choice, but the stock has had a big rally over the past two years and investors are wondering if it’s still an attractive option.
Enbridge stock price
ENB is trading near $68 per share at the time of writing. The stock traded below $44 in the fall of 2023 and recently reached $70 before pulling back in recent weeks.
The rally began when the Bank of Canada and the U.S. Federal Reserve signaled in the fall of 2023 that they were done raising rates in their battle to control inflation. Enbridge and other pipeline and utility companies took a hit in 2022 and 2023 as central banks aggressively raised rates. Energy infrastructure companies use debt to finance their large capital programs. Projects often cost billions of dollars and can take years to complete. Higher financing costs put pressure on profits and can mean less money is available for benefits.
At one point, some experts began to worry that Enbridge might have to trim its generous dividend. Ultimately, the fear turned out to be unfounded. Interest rate cuts in 2024 and 2025 eased pressure on financing costs and provided new tailwinds for the stock. Enbridge’s growth initiatives are also drawing investors back to the stock.
Diversification
Enbridge spent $14 billion to buy three U.S. natural gas companies in 2024. The deal makes Enbridge the largest operator of natural gas utilities in North America, at a time when demand for natural gas is expected to rise in coming years as gas-fired power generation facilities are built to produce electricity for AI data centers. Enbridge’s extensive natural gas transmission pipelines, combined with its distribution facilities, position the company to benefit from demand growth.
Enbridge has made other investments in recent years to diversify its revenue stream. The company bought an oil export terminal in Texas and expanded its renewable energy division with the purchase of America’s third-largest solar and wind developer. In addition, Enbridge is a partner in the Woodfibre liquefied natural gas (LNG) export facility being built on the coast of British Columbia.
Looking ahead, Enbridge has a $35 billion capital program to grow revenue and distributable cash flow. The company is expanding its oil and natural gas transmission networks to meet rising demand as Canadian oil and gas producers increase production. It is also building solar facilities to provide power to AI data center customers.
As new assets are completed and put into service, the increase in cash flow should support continued dividend increases. Enbridge has increased its dividend every year for the past thirty years. Investors who buy ENB shares at the current price can get a dividend yield of 5.5%.
Risks
The broader stock market is due for a pullback. When that happens, Enbridge won’t be immune to the momentum shift, especially given its stellar performance over the past few years.
Further interest rate cuts by the Bank of Canada and the US Federal Reserve are not guaranteed. In fact, a rise in inflation due to rates could potentially force central banks to start raising rates again in 2026 or 2027. In that scenario, Enbridge’s stock price would face new headwinds.
The bottom line
Enbridge pays a good dividend that should continue to grow as the company completes capital projects and makes strategic acquisitions. Short-term volatility is expected, but any material pullback would be seen as an opportunity to add to the position.
If you have some money to put to work in a portfolio focused on passive income, this stock deserves to be on your radar.
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