3 Reasons To Buy The Dip In 7.3% Yielding Enbridge Stock (NYSE:ENB)

Enbridge (NYSE:ENB) is one of the potentially safest, most proven high yielding stocks in the market today. The stock is looking attractive after pulling back sharply lately. The stock is down by ~23% over the past 50 weeks:

And is down by over 8% over the past few weeks alone:

In this article, we discuss three compelling reasons why investors may want to buy the dip in ENB stock.

Reason #1: ENB Stock Is A Great Place To Ride Out A Recession

With recession concerns growing, ENB appears well-positioned to be one of the best places to ride out a recession. This is due to:

• ENB’s very stable cash flow profile backed by regulated and/or fixed fee contracts, 95% of whose counterparties have an investment grade credit rating.
• A broadly diversified portfolio of high-quality, competitively positioned assets, encompassing the longest crude oil pipeline in North America, the largest natural gas distribution enterprise, and the second most extensive natural gas transmission network in the United States.
• A very strong balance sheet that earns it a BBB+ credit rating, gives it plenty of liquidity, and enjoys strong insulation from rising interest rates.

Moreover, ENB EBITDA generation has proven to be remarkably stable over the years, regardless of macro conditions. For example, in 2018, ENB saw a large increase in EBITDA despite major headwinds being felt in the energy sector and its EBITDA actually increased slightly during 2020 despite it being a catastrophic environment for the energy industry:

When you put all of this together, ENB appears to be an excellent choice for a defensive cash flowing investment to ride out a recession in.

Reason #2: ENB Stock Offers Investors A Great Combination Of Current Yield And Long-Term Growth

ENB also offers investors a highly compelling current yield of 7.27% thanks to its strong pullback. When combined with its 27-year dividend growth streak, ENB offers investors a very attractive combination of current yield and dividend growth dependability.

On top of that, ENB is retaining ~35% of its distributable cash flow, giving it plenty of resources alongside its substantial balance sheet liquidity to invest in growth projects.

Fortunately, its large and well-diversified portfolio of assets give it a large number of growth investment opportunities, and should enable it to achieve its long-term guidance for a 5% EBITDA CAGR:

Moreover, ENB is setting itself for sustained long-term growth even as the energy transition progresses thanks to its growing portfolio of renewable power production assets.

Reason #3: ENB Stock Looks Undervalued

Last, but not least, ENB stock looks undervalued right now, thanks in large part to its recent sharp pullback. After underperforming the broader energy industry (XLE) over the past three years, ENB’s price to value ratio has become much more attractive relative to alternatives:

We also see this in its valuation metrics. Its dividend yield of 7.27% is currently 25 basis points above its five-year average while its EV/EBITDA multiple of 11.69x sits at a clear discount to its five-year average of 12.54x.

When combined with its aforementioned growth potential, future total returns are highly likely to exceed 10% over the long-term. When factoring in the defensive capabilities of the company’s business model and balance sheet, these total returns look highly attractive.

Investor Takeaway

While ENB stock has had a rough 50 weeks and it is unlikely to turn average retail investors into overnight millionaires, it is still an excellent choice right now. Thanks to its defensive well-diversified portfolio, fortress balance sheet that ranks among the best in the midstream industry, strong and sustainable growth prospects, impressive dividend growth track record, high and potentially safe current dividend yield, and undervalued stock price, I believe ENB should deliver double digit total returns for years to come alongside a low risk profile.

Given the uncertainties facing the economy right now and the general overvalued state of the broader stock market, ENB is a compelling opportunity.