The energy sector has been among the market’s worst-performing groups over the past several years. Energy stocks have dealt with a number of macroeconomic challenges, including weak commodity prices, and the coronavirus crisis which has reduced demand.

However, Enbridge Inc. (ENB) is a top energy stock that income investors should consider buying right now. Enbridge is a large-cap energy producer with a long history of raising dividends. Thanks to its weak share price performance in recent months, the stock has a high dividend yield of nearly 8% and an attractive valuation.

Business Overview and Recent Events

Enbridge is an oil & gas company that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission. Enbridge bought Spectra Energy for $28 billion in 2016, and has become one of the largest midstream companies in North America.

Enbridge reported its first-quarter earnings results on May 7. The company generated revenues of CAD$12 billion during the quarter, which was 7% less than the revenues that Enbridge generated during the previous year’s quarter.

Revenues were down despite the fact that new projects were placed into service, but this was mostly due to the fact that commodity prices are a flow-through item, which also reduces costs. Enbridge was able to generate adjusted EBITDA of CAD$3.76 billion during the first quarter, unchanged from the previous year’s quarter, as both its revenues and its costs declined.

Distributable cash flows totaled CAD$2.7 billion, which equates to US$1.9 billion, or $0.79 on a per-share basis, which easily covered Enbridge’s dividend payments. Despite the coronavirus crisis, Enbridge maintained its guidance for distributable cash flow-per-share of ~C$4.65 for 2020, which equates to US$3.32, which would have been up 2% year over year at constant currency rates. As a result, Enbridge still expects 2020 to be a year of growth, despite the pressures of weak commodity prices and a global recession.

Fortunately, the company’s strong business model allows it to remain cash flow positive and profitable, even in such a difficult environment. This is crucial to Enbridge’s ability to maintain its hefty dividend payouts.

Dividend Analysis

Enbridge stock currently pays an annual dividend of C$3.24, which works out to approximately $2.38 per share in U.S. dollars. With a recent share price of roughly $30, Enbridge stock currently yields 7.9%. This is a very high yield, considering the S&P 500 Index yields just 2% right now. In an investing climate of low interest rates, Enbridge stock looks very appealing for income investors.

Importantly, the dividend appears secure. With expected distributable cash flow of $3.32 per share and a current annualized dividend of $2.38 per share, Enbridge has a 2020 payout ratio of 72%. This means the dividend is well-covered by distributable cash flow, which allows the company to raise its dividend on a regular basis. Enbridge has increased its dividend for 25 consecutive years.

Final Thoughts

The energy sector has been one of the market’s biggest under-performers in recent years, but Enbridge continues to report stable cash flows and pay dividends to shareholders. The company has a long runway of growth in future years due to its impressive lineup of new projects. In the meantime, the stock is cheap with a P/DCF ratio below 10. And, the stock is extremely attractive for income investors due to its nearly 8% dividend yield.