Enbridge (ENB) has one of the best dividend growth records on the TSX, but high yields from the stock’s decline over the past two years have investors wondering if the market is anticipating a dividend cut. At the time of this writing, Ann Bridge’s shares are trading near $49, and at one point in 2022 they were trading at $59. Last fall, shares fell back to $43. Since then, “buyers on the downside” looking for higher yields have begun to buy modestly in anticipation of support from the dividend cut.
The Bank of Canada has just cut rates by 0.25% after aggressive rate hikes in 2022 and 2023. The Bank of Canada is expected to continue cutting rates later this year and in 2025. The U.S. Federal Reserve is still waiting for more evidence that inflation is under control, but the market generally expects the Fed to start cutting rates in late 2024 or early next year. This will help Enbridge and could bring new positive factors to the share price.
Enbridge is completing the $14 billion acquisition of three natural gas utilities in the United States. The deals make Enbridge the largest natural gas utility operator in North America. Natural gas demand is expected to grow over the next few years to meet the surge in power generation from artificial intelligence data centers. Additionally, Enbridge has a $25 billion secured capital program that will fuel revenue and cash flow growth in the coming years. Finally, Enbridge will continue to expand its renewable energy business to capitalize on the shift to solar and wind.
The dividend on Enbridge should be safe. In fact, investors will likely see the dividend continue to grow. Falling interest rates in Canada and the U.S. will reduce debt payments and help free up more cash. Meanwhile, contributions from acquisitions and new assets should support the cash flow needed to boost the dividend.
Ambridge stock isn’t as cheap as it was last fall, but the current price still looks attractive. If an investor has some cash to put into a portfolio that targets a high-yielding dividend, then this stock is worth looking at.
