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Enbridge: A High-Yielding Midstream Play

Apr. 12, 2018 11:59 AM ETEnbridge Inc. (ENB), ENB:CA45 Comments


  • Enbridge is the largest pipeline company in North America.
  • The company boasts a dividend of 6.6% and will likely be able to increase its dividend at a 10% CAGR until at least 2020.
  • The dividend appears to be relatively safe due in large part to the secure cash flow that Enbridge's long-term contracts provide it.
  • Growth after 2020 depends largely on the capital markets but seems likely due to the projected increase in natural gas and oil production on the continent.
  • The stock is not the cheapest in the pipeline space, but it appears reasonably cheap and could be a good long-term holding for energy investors.

Over the past few weeks, I have been seeing quite a few bullish cases on Canadian pipeline giant Enbridge (NYSE:ENB), so I decided that it might be worth revisiting the company as I have not published anything on it for a few years now. I must admit to having a certain fondness for pipeline and other midstream companies due to the fact that they typically have large and stable cash flows that provide these firms with a significant amount of capacity to pay out substantial dividends to their shareholders. Enbridge is no exception to this, boasting a 6.6% dividend yield at the current share price. The company also owns the largest pipeline system on the North American continent and is therefore an integral player in the energy infrastructure of both the United States and Canada. The company is also currently trading at a very attractive valuation, so it certainly looks like it could be an appealing addition to an energy investor's portfolio.

As I just mentioned, Enbridge has the largest pipeline network in North America, which transports approximately 28% of the continent's crude supplies and 20% of its natural gas.

Source: Enbridge, Inc.

In addition, the company has been steadily growing and expanding its capacity over time, which is partly due to capacity upgrades and partly due to its customers increasing their use of the company's services. As shown here, the company's mainline transported an average of 1,737 thousand barrels of oil equivalent per day in 2013, which grew to approximately 2,733 thousand barrels per day in December 2017. This represents an increase of 57.34% over the four-year period.

Source: Enbridge, Inc.

The company expects to deliver similarly strong performance in 2018, which will likely be helped by the CAD$12 billion ($9.48 billion) worth of new projects (primarily pipelines) that Enbridge brought online in 2017:

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