Shares of Enbridge (ENB 3.34%) declined by 19.6% in 2020, according to data provided by S&P Global Market Intelligence. Weighing on the oil pipeline company was all the volatility in the oil market last year.
While oil prices and demand cratered in 2020, that didn't have much impact on Enbridge's financial results. The company expected to achieve the midpoint of its initial financial guidance. It anticipated offsetting headwinds, like lower volumes and energy services results, with cost reductions, lower interest rates, and higher rate settlements on some of its pipelines. Because of those initiatives, the company generated more than enough cash to cover its dividend and the majority of its expansion spending, which enabled the company to maintain a strong balance sheet.
Meanwhile, the company expects its cash flow to continue growing in 2021 as it completes additional expansion projects. Such ongoing productivity has enabled Enbridge to increase its dividend for the 26th straight year. This upward trajectory could continue through at least 2023, given the volume of contractually secured expansion projects in its backlog.
However, despite all those positives, the market focused on the negatives last year. For Enbridge, a major negative is its outsized exposure to the oil market since it's one of the leaders in transporting crude oil in North America. For that reason, there are concerns that its cash flow could be under pressure in future years as the global economy transitions to cleaner fuel sources. While Enbridge is working toward that transition by investing in renewable energy projects like offshore wind farms, those assets only supply about 5% of its earnings, compared to 53% from oil pipelines and 42% from natural gas-related infrastructure.
With Enbridge's stock slumping last year, its dividend now yields 7.8% after its recent 3% increase. That payout is on solid ground, given the stability of its cash flow and the expectation that its earnings will continue growing. As a result, Enbridge looks like an appealing stock for income investors to consider