5 reasons why energy giant Enbridge is a super stock to build passive income

If you're interested in energy stocks, you'll be familiar with Chevron, ExxonMobil, or Occidental Petroleum, which has been very popular lately, mainly because of Warren Buffett. But now we're going to talk about the somewhat hidden Enbridge $ENB+0.6%, which could become a very interesting choice in your portfolio. And not just because of its dividend. Let's take a look at 5 reasons why I think so.

1. The energy crisis

While it may not read lightly, Enbridge stands to benefit greatly from today's dire energy situation. While the company has most of its assets concentrated in Canada and the US, it also operates in the European renewable energy market. In particular, the use of wind and water to generate electricity.

Renewables are a source of passion, which is completely understandable, but as we know, the European Union is not going to shy away from its green path. This is, of course, Enbridge's opportunity for further growth.

2. Company profitability

The company is profitable in the long term, this is very important. Although we can only see the figures for the last 4 years in the graph, the company has been profitable for decades. Therefore, it is hard to assume that it will be the other way around in the near future.

The company maintained its profitability in the difficult year 2020. In that year, even such giants of their industry as ExxonMobil or Chevron were in the red.

Source.

3. Growing revenues

The financial performance of energy companies is largely influenced by commodity prices, especially oil and gas. So just looking at the historical price of oil, it is clear that it is a very volatile business.

Source: tradingeconomics.com

So energy companies are trying not to be so dependent on oil, which Enbridge in particular is doing quite well. At first glance, such revenue trends may look wild, but over the long term, revenues have been growing. For example, in 2021, there was a 20.43% year-over-year increase in revenue.

Source.

4. Dividend

The dividend was between $0.66 and $0.67 per share this quarter. Therefore, the current dividend yield is 6.55%, which is not bad. The company is slowly but gradually increasing the dividend, as we can see in the chart. Dividends have been paid regularly since 2014, but in any case, the company started rewarding shareholders in 1999, followed by a three-year hiatus in 2011. The payout ratio, which is the percentage of profits the company gives to shareholders, is now 135%. This can mean that a company pays out more in dividends than its profits can support. I wouldn't be particularly worried about this, as the company doesn't look like it's in trouble financially.

Source.

5. Diversifying the business

The breadth of the business may be more crucial now than ever. Macroeconomic pressures are mounting from all sides and will be extremely difficult to resist. Fortunately, this can be tempered by a broad business focus, which is what we can say about Enbridge. The company's business is divided into 5 main segments:

  • Pipelines - the operation of pipelines and related terminals for the transportation of various types of crude oil and other liquid hydrocarbons
  • Gas Transportation and Midstream - investing in pipelines and natural gas gathering and processing facilities
  • Gas Distribution and Storage - natural gas distribution activities for residential, commercial and industrial customers
  • Renewable Energy Generation - operation of energy generation assets such as wind, solar and geothermal power plants, waste heat recovery facilities, transmission assets
  • Energy Services - providing energy marketing services to various refineries, manufacturers and other customers. Also engaged in commodity marketing and logistics services
Source.

Summary

I've highlighted a few reasons why I think this company is at least worthy of consideration. However, this is definitely not an investment recommendation. If someone is interested in the firm, a thorough analysis is in order before making any investment.

The company does have its problems, which include increasing long-term debt or the lack of buybacks.

Are you investing in Enbridge? If not, which energy stock? 🤔

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