The question of whether or not a company's dividend yield is sustainable is often reserved for companies which are in financial trouble or those which have indicated a rate cut may be on the horizon; neither is the case for Canada's largest pipeline company Enbridge Inc. (TSX:ENB)(NYSE:ENB).
Enbridge has continued to raise its dividend at a double-digit pace in recent years, and has seen its yield continue to rise in response to a languishing share price.
The reasons underpinning Enbridge's declining share price of late are many. From rising interest rates to concern that new projects may be temporarily or permanently halted, to political concerns and heavy-light crude discounts, Enbridge has a lot on its plate right now.
Investors, seemingly allergic to operational risk associated with commodities-related companies, have eschewed such investments in favor of high-growth opportunities in technology and other sectors.
As with anything in life, going against the grain can be a difficult (but potentially very profitable) proposition, as long as the tide turns within a reasonable amount of time and investors begin to see what you do: nothing is worse than watching a contrarian portfolio being beaten up by a herd of investors who have a different perspective.
As many short-sellers know, being early can be worse than being wrong. While Enbridge's yield may indeed be safe, investors can not rule out the potential for the company's share price to continue to decline further. In my opinion, the risk is worth the reward with this firm, however risk does remain.
Invest wisely, my friends.
