Enbridge (TSX:ENB) has shown a prolonged period of underperformance relative to the TSX Composite Index, lagging behind by approximately 22% over a five-year period. Despite offering a relatively high dividend yield, the stock still trails the index, even when factoring in dividends.
However, in the past year, Enbridge has demonstrated a significant improvement in performance, with a 21% increase over the trailing 12-month period, outperforming the TSX index during the same timeframe. This rally can be attributed to a strong second-quarter earnings release, which revealed an 8.7% increase in revenue after a period of revenue decline in 2023.
One positive development for Enbridge is the improvement in its payout ratio, a measure of dividend sustainability. The company has made efforts to address concerns about sustainability by moderating dividend increases, resulting in a payout ratio of 95%, albeit still relatively high. Despite this, Enbridge maintains a 6.9% dividend yield, one of the highest among large-cap TSX stocks.
Furthermore, Enbridge benefits from a favorable oil market environment, with oil prices remaining relatively stable above the $50-$60 range, in contrast to the weak market conditions of the 2014-2020 period. With OPEC controlling supply levels, Enbridge’s customers are better positioned to operate profitably and fulfill their long-term obligations.
Looking ahead, there is optimism regarding Enbridge’s future prospects, given its historical performance during healthier oil market conditions. However, there are potential risks such as increased competition from new pipeline projects and a shift towards renewable energy sources that could impact demand for oil and natural gas. Despite these risks, Enbridge appears to be navigating current challenges successfully.
