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Enbridge Hikes Dividend, Remains Deeply Undervalued

It has a wide moat and an attractive yield, and now's the time to invest.

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Wide-moat  Enbridge (ENB) held its 2018 investor day and announced a 10% dividend increase, as expected. On an annualized basis, the 2019 dividend stands at CAD 2.95 per share, representing a 6.8% yield. Many investors feared that Enbridge wouldn’t be able to meet its targeted increase, but we feel comfortable that the company can make its payments with its distributable cash flow coverage of 1.65 times the dividend payments.

Enbridge announced a 2019 outlook that included adjusted EBITDA of CAD 13 billion and distributable cash flow of CAD 8.9 billion. Both targets are in line with our expectations. The company continues to expect Line 3 to be placed into service in the back half of 2019, slightly ahead of our first-quarter 2020 expectations. Construction is 80% complete in Canada, and Enbridge expects it to be fully completed by July 2019. Enbridge is also continuing its negotiations on the Mainline tolling agreement but did not give a detailed update due to ongoing discussions with shippers. The existing agreement expires in 2021, but Enbridge is using the current uncertainty associated with future egress to lock in future cash flows on the Mainline.

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