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Enbridge Shares Gain 16% YTD: Should You Wait or Buy the Stock?
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Enbridge Inc. (ENB - Free Report) shares have gained 16.1% year to date, significantly outperforming the 7.7% improvement seen across the oil-energy sector. The company's low-risk business model, characterized by stable and predictable cash flows, has been a key driver of its share price appreciation. Enbridge’s robust backlog of midstream projects, which are set to generate additional fee-based earnings, further underscores the stability and resilience of its business model.
Image Source: Zacks Investment Research
For investors, the critical consideration is how to position themselves in response to these developments. However, before exploring investment strategies, it’s essential to revisit some core fundamentals of this leading North American energy infrastructure company.
ENB’s Stable Business & Huge Project Backlogs Drive Growth
Enbridge is a leading midstream energy player in North America, operating an extensive crude oil and liquids transportation network spanning 18,085 miles — the world's longest and most complex system. Enbridge's gas transportation pipeline network spans 71,308 miles, covering 31 U.S. states, four Canadian provinces, and offshore areas in the Gulf of Mexico.
Notably, Enbridge’s pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.
The midstream energy major secures incremental cash flows from its C$24 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables, with the maximum in-service date of 2028.
High Dividend Yield & Growing DCF: ENB's Sustainable Returns
Enbridge has a strong focus on returning capital to its shareholders, as it has made dividend payments to shareholders for over 69 years. Backed by its stable midstream business model, the company has successfully increased its dividend payments at an average compound annual growth rate of 10% over the past 29 years. Currently, ENB offers a dividend yield of 6.7%, which is significantly higher than the 3.8% yield of the composite stocks in the oil-energy sector.
Image Source: Zacks Investment Research
Considering its substantial backlog of midstream growth projects, it is expected that Enbridge will continue to reward shareholders with attractive dividend payments. The company's distributable cash flow (DCF) for the first six months of this year was C$6.32 billion, up from C$5.96 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and potentially grow its dividend payouts.
How Should Investors Play ENB Stock?
However, certain factors might raise concerns among investors. Enbridge's heavy reliance on debt financing, primarily for acquisitions, could become a risk if not properly managed. The company's debt-to-capitalization ratio stands at 56.7%, significantly above the sector's average of 35.5%.
Additionally, the share dilution resulting from the Dominion Energy acquisition, along with the increased interest expenses, has dampened earnings per share growth, thereby reducing the potential for immediate returns.
Despite these negatives, the company’s long-term outlook looks promising, backed by strong growth prospects and stable fee-based cash flows. However, investors are advised to be cautious. Instead of rushing to add ENB, carrying a Zacks Rank #3 (Hold), to their portfolios, it may be prudent to wait for a more opportune entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This is because, at this moment, shares are somewhat expensive on a relative basis, with the current 15.31X trailing 12-month Enterprise Value (EV)/Earnings before Interest Tax Depreciation and Amortization (EBITDA) staying above the 14.67X five-year median. Additionally, ENB is trading at a premium compared to the sector average of 3.18X. It is also more expensive than other large midstream players such as Kinder Morgan Inc (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which have respective EV/EBITDA of 11.98X and 9.81X.
Image Source: Zacks Investment Research
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Enbridge Shares Gain 16% YTD: Should You Wait or Buy the Stock?
Enbridge Inc. (ENB - Free Report) shares have gained 16.1% year to date, significantly outperforming the 7.7% improvement seen across the oil-energy sector. The company's low-risk business model, characterized by stable and predictable cash flows, has been a key driver of its share price appreciation. Enbridge’s robust backlog of midstream projects, which are set to generate additional fee-based earnings, further underscores the stability and resilience of its business model.
For investors, the critical consideration is how to position themselves in response to these developments. However, before exploring investment strategies, it’s essential to revisit some core fundamentals of this leading North American energy infrastructure company.
ENB’s Stable Business & Huge Project Backlogs Drive Growth
Enbridge is a leading midstream energy player in North America, operating an extensive crude oil and liquids transportation network spanning 18,085 miles — the world's longest and most complex system. Enbridge's gas transportation pipeline network spans 71,308 miles, covering 31 U.S. states, four Canadian provinces, and offshore areas in the Gulf of Mexico.
Notably, Enbridge’s pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.
The midstream energy major secures incremental cash flows from its C$24 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables, with the maximum in-service date of 2028.
High Dividend Yield & Growing DCF: ENB's Sustainable Returns
Enbridge has a strong focus on returning capital to its shareholders, as it has made dividend payments to shareholders for over 69 years. Backed by its stable midstream business model, the company has successfully increased its dividend payments at an average compound annual growth rate of 10% over the past 29 years. Currently, ENB offers a dividend yield of 6.7%, which is significantly higher than the 3.8% yield of the composite stocks in the oil-energy sector.
Considering its substantial backlog of midstream growth projects, it is expected that Enbridge will continue to reward shareholders with attractive dividend payments. The company's distributable cash flow (DCF) for the first six months of this year was C$6.32 billion, up from C$5.96 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and potentially grow its dividend payouts.
How Should Investors Play ENB Stock?
However, certain factors might raise concerns among investors. Enbridge's heavy reliance on debt financing, primarily for acquisitions, could become a risk if not properly managed. The company's debt-to-capitalization ratio stands at 56.7%, significantly above the sector's average of 35.5%.
Additionally, the share dilution resulting from the Dominion Energy acquisition, along with the increased interest expenses, has dampened earnings per share growth, thereby reducing the potential for immediate returns.
Despite these negatives, the company’s long-term outlook looks promising, backed by strong growth prospects and stable fee-based cash flows. However, investors are advised to be cautious. Instead of rushing to add ENB, carrying a Zacks Rank #3 (Hold), to their portfolios, it may be prudent to wait for a more opportune entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This is because, at this moment, shares are somewhat expensive on a relative basis, with the current 15.31X trailing 12-month Enterprise Value (EV)/Earnings before Interest Tax Depreciation and Amortization (EBITDA) staying above the 14.67X five-year median. Additionally, ENB is trading at a premium compared to the sector average of 3.18X. It is also more expensive than other large midstream players such as Kinder Morgan Inc (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which have respective EV/EBITDA of 11.98X and 9.81X.