With a yield that has breached 7% (currently slightly below 7%), Ebridge Inc. (TSX:ENB)(NYSE:ENB) is a company which has caused quite a bit of concern among a number of investors who have pointed to a perceived risk relating to the company’s dividend yield, and the potential for management to cut the dividend moving forward.
While a 7% yield is indeed very high, and for Enbridge represents one of the highest yields the company has seen in its history, I believe this yield is safe for a number of reasons.
First of all, much of the decline of late can be linked back to the fact that we are now in a rising interest rate environment. With some investors taking the position that a “reversion toward a longer term mean” is likely, and much of the increase Enbridge has experienced over the past 10 years is a result of an artificially low interest rate environment, some sort of downward revision can be expected.
Negative news relating to the Line 3 expansion and other key issues with the company’s balance sheet have led to additional downward pressure on Enbridge’s stock price.
While Enbridge’s current balance sheet is not pristine, the ability of the company to raise capital a number of different ways is one key reason I believe the company’s dividend (and forward dividend growth) are likely to remain intact for long-term investors. As with any company, investing over the long-term requires some measure of short-term fortitude.
Invest wisely, my friends.
