Oil and natural gas prices rose sharply as a result of the invasion of Ukraine by Russia, the economic recovery and rise in activity, underinvestment in new sources, and supply interruption. The demand for Enbridge’s (TSX:ENB) energy infrastructure assets increased as a result of the higher average realized prices, which helped to raise the stock price. In 2022, Enbridge stock increased 14%, while the S&P/TSX Composite Index fell by around 9%.
Is Enbridge a buy at current levels?
Enbridge is an integral part of the energy value chain. Through the Gas Transmission and Midstream segment it transports about one-fifth of the natural gas consumed in the U.S.
In addition, it transports nearly 30% of the crude oil produced in North America through its Liquids Pipelines division to refineries and markets along the Gulf Coast, in Eastern Canada, and the United States. Its Gas Distribution and Storage unit provide energy to Ontario’s inhabitants which has metered connections.
Enbridge stock also continues to ramp up its low-carbon investments and has ownership interests in renewable energy facilities.
Given its crucial role in the energy supply, Enbridge stock is well-positioned to provide solid financial results in the upcoming years. This might help to keep its stock price high. Enbridge’s management anticipates its EBITDA (earnings before interest, tax, depreciation, and amortization) to increase by around 6% in 2023 despite macroeconomic headwinds. The advantages of the newly put-into-service assets, the high utilization rate, and revenue escalators will probably be the main drivers of its earnings.
Another reason to buy Enbridge stock
This large-cap corporation offers capital gains and makes a solid choice for passive income. Enbridge is one of the best dividend-paying stocks on the Canadian stock exchange, paying and raising dividends in all market circumstances.
Enbridge kept paying its normal dividend and steadily increasing it during the pandemic, while other large energy firms reduced their dividends to remain sustainable. It has been consistently paying a dividend for roughly 68 years. In the meantime, over the previous 28 years, it increased its dividend at a CAGR (compound annual growth rate) of 10%.
Through its numerous cash flows, Enbridge stock can cover its dependable dividend payments. Furthermore, the continuous investment in conventional and renewable energy assets, contractual agreements to lower price and volume risk, and strong secured projects all point to future growth.
Notably, the majority of Enbridge’s adjusted EBITDA has inflation protection, which boosts the company’s distributable cash flow per share and maintains its larger dividend payments. Additionally, its payout ratio of 60–70% of distributable cash flow is long-term sustainable.
Enbridge’s organic expansion will probably be supported by the continued strength of its main businesses and a secured backlog of $17 billion. Additionally, it is anticipated that strategic merger and acquisition prospects would support its expansion. Its growth should be accelerated by its solid balance sheet and energy transition potential. Enbridge stock offers a high and dependable return of 6.7% on its quarterly dividend.