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Stock Strategist

Concerns About Enbridge's Dividend Are Overblown

The wide-moat company is on course to boost its dividend and offers hefty upside.

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 Enbridge’s (ENB) stock hasn’t fared well over the past six months, down 15% year to date. Investors are skeptical of the company’s aggressive plan for 10% annual dividend growth throughout 2019 and 2020 and fear that Enbridge might be biting off more than it can chew, reminiscent of Kinder Morgan’s 2015 dividend cut. Accordingly, the stock has sold off throughout the year on any news that may negatively affect the company, most recently a Minnesota judge recommending that the Line 3 replacement project follow the pipeline’s existing route.

We think that the market is overreacting to the news flow and unjustly conjuring up the ghosts of Kinder Morgan. Enbridge sports a near-term CAD 22 billion in commercially secured capital projects in its growth portfolio, which is highlighted by the Line 3 replacement project. We think the project will receive approval to use its preferred route, as it offers $3.5 billion in economic benefits and limits its impact on Minnesota’s environment and tribal communities. Once placed into service, we expect the Line 3 replacement project coupled with various natural gas growth projects to generate CAD 4 billion in incremental EBITDA, which will support the dividend growth.

Joe Gemino does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.