Shares of Enbridge (NYSE:ENB) slumped 23.5% during the first half of 2020, according to data provided by S&P Global Market Intelligence. The main issue weighing on the Canadian energy infrastructure company was the sell-off in the oil market.
Crude oil prices cratered earlier this year. At that point, the U.S. oil price benchmark crashed into negative territory. Despite an epic rebound from that bottom, oil fell more than 30% during the first half of 2020.
While that sell-off had a dramatic impact on companies that produce oil, it hasn't had much effect on Enbridge. The company was one of the few in the energy sector to reaffirm its full-year earnings outlook. That's because its low-risk business model minimizes its exposure to fluctuations in commodity prices and volumes. Meanwhile, the downturn's limited impact should be more than offset by positives like cost reductions, lower interest rates, and a stronger U.S. dollar.
However, while Enbridge doesn't expect the oil market downturn to impact its earnings, some new legal headwinds have emerged that could affect it. A judge ordered the company to shut down its Line 5 oil pipeline, which currently generates 2% of its earnings. However, in a worst-case scenario, this could affect 5% of its earnings because it would bottleneck other assets.
On top of that, the company owns a stake in the Dakota Access Pipeline, which a court recently ordered shut and drained while it undergoes an environmental review. These shutdowns will likely have some impact on the company's near-term cash flow.
This year has been a tough one for the pipeline sector as it has battled the oil market downturn and a series of legal setbacks. That's putting pressure on the valuations of pipeline companies like Enbridge.
However, the company is in a strong financial position to navigate the sector's issues. Because of that, its dividend, which now yields more than 7.5%, appears safe despite this year's turmoil.