An Undervalued Dividend-Growth Star with a Decent Yield

This first appeared as 1 of 7 top Canadian dividend ideas for September 2017 in the Seeking Alpha Marketplace service DGI Across North America.

If you’re looking for one energy stock to invest in that “has it all”, it’d be Enbridge Inc. (TSX:ENB)(NYSE:ENB). As an energy infrastructure company, it is a safer investment than oil & gas producers. Moreover, it’s a leader in its space.

oil pipeline

A Diversified Portfolio

Enbridge transports 28% of the crude oil produced in North America, including nearly 100 commodities or refined products.

Enbridge also gathers, transports, processes, stores, and distributes natural gas. So, it plays a key role in North America’s transition from coal to cleaner energy — natural gas and renewable energy.

Since 2002 the company has begun investing in renewable energy with a primary focus on wind generation.

Valuation, Dividends, and Returns

Enbridge is investment grade with an S&P credit rating of BBB+. Morningstar gives the wide-moat company a fair value estimate of C$64 and a “consider buy” price of C$38.40.

The Street consensus from Thomson Reuters (TSX:TRI)(NYSE:TRI) has a mean 12-month target price of C$62.30 on the stock, which represents ~24% upside potential from the recent quotation of ~C$50.10 per share.

Having increased its dividend for 21 consecutive years, management isn’t stopping there. With $26 billion of secured near-term projects, it estimates Enbridge will grow its dividend per share by 10-12% through 2024.

The recent pullback in the shares allows buyers to start off with an attractive yield of ~4.9%. If Enbridge shares fall further to the ~5.3-5.5% level, which implies a share price of C$44.36 – 46, it’ll be a great time to add more shares on the cheap.


Enbridge shares’ next support is at the ~C$44-46 level, which would indicate a target yield of ~5.3-5.5%.

Enbridge stock technical chart

Investor Takeaway

The meaningful dip from the recent high brings Enbridge shares to a cash flow multiple of ~9.3. The shares now offer a market-beating yield of nearly 4.9% in a dividend-growth star which has increased its dividend per share for 21 consecutive years and counting. Now is a good time to pick up some shares and if they fall to the C$46 level or lower, buy more for income, income, growth, and total returns.

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Disclosure: At the time of writing, I’m long on the TSX: ENB.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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4 thoughts on “An Undervalued Dividend-Growth Star with a Decent Yield

  1. Anuj Agarwal

    Hi Passive Income Earner Team,

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  2. Passive Income Earner Post author


    Not sure I fully understand your comment, but I think you’re asking if it’s a good time to buy into oil/gas ETF today. Taking oil as an example, it’s hard to tell if WTI oil price will go up to US$55 or down to US$45 per barrel in the near term.

    With the energy ETF (XLE), we just saw a rally on from the low $60. To be on the safe side, investors should wait and pick up on the dip, not after it has rallied.

    Just my 2 cents.

Comments are closed.