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Fortunately, on this metric, the company seems to be in good shape. Management expects to generate $5.9 to $6.3 per share in distributable free cash flow this year. That’s because demand for natural gas has been relatively robust, despite the pandemic. Meanwhile, this year’s expected dividend is $2.46.
That means Enbridge stock could generate roughly double the amount it needs to provide a dividend. That makes the dividend incredibly reliable.
Enbridge stock valuation
Unsurprisingly, Enbridge stock is also trading at a beaten-down valuation. Investor anxiety about energy demand has pummelled all oil and gas stocks this year. However, Enbridge isn’t an oil and gas producer, but a transporter. In other words, it owns and operates the pipelines used to distribute gas.
In fact, Enbridge supplies 25% of crude oil produced in North America, and nearly 20% of the natural gas consumed in the U.S. Volumes dipped this year as North America went into lockdown, but should recover next year as the economy regains momentum.
That bounce back hasn’t been priced into the Enbridge stock price yet. The stock trades at six times earnings before interest, taxes, depreciation and amortization (EBITDA). That’s far below its historic average of 8.9 times EBITDA. The stock also trades at a forward price-to-earnings ratio of 14.3 and just 34% higher than book value per share.
It’s the ultimate value stock. In this environment, it’s also an incredible contrarian opportunity, especially for income-seeking investors. My Fool colleague Andrew Button believes a Trump re-election could be the catalyst that helps unlock value in Enbridge stock. At this point, that seems fairly likely.