Enbridge (TSX:ENB)(NYSE:ENB) was once a dividend darling on the TSX Index. The stock allowed investors to have their cake (a large, growing dividend) and eat it too (steady capital gains) before it turned into an unstable rollercoaster ride in early 2015.
After the latest coronavirus-induced carnage, Enbridge stock now finds itself sporting a gigantic 8% dividend yield. Given the management team that’s willing to swim to great lengths to maintain its reputation as a shareholder-friendly company, the now swollen dividend looks a heck of a lot safer than the company’s financials would suggest.
While Enbridge is a great cash-flow-generative company with decent fundamentals, the company also has a considerable amount of baggage. But this baggage, I believe, is already baked into the share price — and then some. On a price-to-book (P/B) basis, Enbridge stock is close to the cheapest it’s been in recent memory at just 1.35 times book, the lowest it’s been in over a decade.
The company has a considerable amount of total debt ($68.6 billion), but most of it isn’t coming due anytime soon. With a somewhat decent liquidity position (0.6 current ratio) and projects slated to come online over the medium-term, the debt-load shouldn’t be a cause for concern.
But as with most pipeline projects, delays are to be expected along the way. And that’s a significant reason why Enbridge’s future cash flows may be less predictable relative to most other highly regulated utility-like firms.
With Warren Buffett recently betting nearly US$10 billion on the natural gas assets, value investors looking for top-down clues ought to consider a battered pipeline like Enbridge while the midstream world is at its cyclical low point.
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