Last month we looked at the pipeline company Enbridge Inc. The utility company supplies natural gas and oil across North America. The stock (NYSE: ENB) has dropped about 12% since the beginning of the year and is near its 52 week low. The last time the stock was this cheap was back in early 2016. One reason for the drop could be due to a slight decrease in natural gas volumes from its existing business. The Spectra acquisition from last year did help to create more volume, however, Enbridge’s natural gas pipeline volumes were about 1,530,000 cubic feet per day, down just 1%. But at least its liquid pipeline business grew in the last quarterly results.

Many analysts have updated their financial forecasts to reflect a number of factors, including a slower ramp-up in regional oil sands pipeline new projects contributions as well as slower recovery in Energy Services margins. 

We believe that Enbridge has a strong competitive position due to its geographic positioning, scale, and diversification. Enbridge will continue to be a long-term core holding for investors seeking a combination of relatively low-risk growth and yield, although the shares could underperform in the near-term until management articulates its long-term financing and organizational streamlining plans. TD securities believe that “Enbridge has a strong competitive position due to its geographic positioning, scale, and diversification. Enbridge will continue to be a long-term core holding for investors seeking a combination of relatively low-risk growth and yield, although the shares could underperform in the near-term until management articulates its long-term financing and organizational streamlining plans.”

According to 15 analysts that are covering the stock, the average twelve-month price target for Enbridge is 28% higher than it is now. Due to uncertainties about upcoming interest rates movements in Canada, and the slowing growth of the pipeline industry there is certainly some risks about Enbridge’s earnings in the near term. However, the fundamentals of the company are still very solid. Enbridge has one of the strongest economic moats of any company. Since pipelines require a lot of capital and regulatory approval, it’s not an industry where anyone can easily get in. Much like the railway industry, it’s pretty much an oligopoly without much competition. The only question remaining is about whether or not the valuation looks good for ENB.

Due to slowing pipeline volumes, the earnings appear to have a weak outlook for Enbridge, either with recent analyst downgrades or a history of missing consensus estimates. The forward price to earnings ratio (P/E) of ENB is currently about 19.8x according to TD Equity Research. By historical measures, Enbridge is not a cheap stock to buy right now. However, in terms of relative valuation compared to other pipeline companies it is not that expensive. Due to the sustainable dividend that is planned to grow at least 8% a year until the year 2024, this wouldn’t be a bad place to buy some. The stock is currently trading at $36.79/share. It has support in the low $30 range. But I wouldn’t wait for it to drop that low.

ENB currently has a dividend yield of 5.2% and has increased its dividends for over twenty consecutive years already. And over the last decade, its dividends have increased by 10% annually. This consistency is what long-term investors like to see in a dividend growth stock. At the end of the day, the market is pricing in the short term risks when it comes to Enbridge. The company has proven that it can consistently generate strong earnings and, although there have been some hiccups along the way, the volumes should continue to grow over time.