The environmentalist in me is a little wary of the energy sector. The pragmatist in me says that pipeline company Enbridge is a smart choice to boost dividend income and a pretty good corporate citizen, all things considered.
They have to be. They need regulatory approval to do just about everything they do.
Big picture: Enbridge’s stock got a bounce recently when regulators in Minnesota approved its plane to replace an ageing crude oil pipeline. Replacing the ageing and decaying existing pipeline will allow the company to increase the volume of oil it exports from Canada to processors in the U.S. The proposal sparked opposition from some environmental and Native American groups, but on balance the decision to approve the pipeline makes sense to me. Transferring crude by pipeline is more efficient, less expensive and safer than transporting it on trucks and trains. Regulators agreed with the company’s assertion that the existing pipeline needs to be replaced.
My vote on the environmental front is that we all should be taking steps to reduce our carbon footprints and dependence on fossil fuels. That said, gas and oil are going to be in demand for decades to come. That’s why I’m comfortable having Enbridge in my portfolio. (I became a stockholder largely by accident, when Enbridge acquired U.S. based Spectra, a provider of natural gas pipelines and services. The company announced a deal to acquire the remaining piece of that company, Spectra Energy Partners, last week in a $3.3 billion deal stock deal.)
Here’s the fun part – the stock, trading at about $36.00 (U.S. dollars) on August 24 – has a 5.7% dividend yield. Canadian taxes will reduce the payout by about a quarter, from my experience. That’s still a very nice yield in today’s environment.
Bottom line: a wide economic moat, an attractive price point to enter or add shares, and a dividend yield that’s hard to match. If I were buying this week, I’d add more Enbridge to my portfolio.
According to the Wall Street Journal, total debt to total assets is 40%, which seems reasonable. The company has been selling “non-core” assets as part of a deleveraging strategy.
Dividend Pick of the Week 