Enbridge (ENB -0.71%) is one of the largest midstream companies in North America, with more miles of oil pipeline than any other competitor. It's number two in natural gas as well. And it has a generous 6.2% dividend yield backed by more than a quarter century of annual increases.

While all of these are good reasons to like Enbridge, there are some other things going on that have investors talking bout the stock. 

The fight in Michigan 

While many consider pipelines one of the safest and cleanest ways to transport oil and natural gas, they come with some risks that can't be avoided. Ruptures, explosions, and spills do occasionally happen. That's the reason why the governor of Michigan, Gretchen Whitmer, is trying to shut down Enbridge's Line 5 pipeline. However, the big fight is over what amounts to a very small portion of the overall pipeline -- the roughly four miles that passes through the Straits of Mackinac. That's part of the Great Lakes, connecting Lake Michigan and Lake Huron.

An energy pipeline with a person welding.

Image source: Getty Images.

According to Enbridge, Line 5 delivers 540 thousand barrels per day (kbpd) of crude oil and natural gas liquids, provides 45% of the gas, diesel, jet fuel, and propane used in the region it serves, supplies 55% of Michigan's propane demand, and ships 80% of Michigan-produced crude oil. It also connects oil production in Western Canada with refining assets and demand in the country's Eastern regions. The midstream company is looking to replace the section that goes under the Straits of Mackinac with a new set up that is encased in a protective tube to ensure reliability and safety. Governor Whitmer has basically said no, and has demanded that Line 5 shut down, even though the update has already received key approvals at the state level. 

To solve the impasse, the two sides have worked through the courts. They've held mediation meetings. And, so far, nothing has worked. At this point Enbridge is openly defying the Governor's order to stop using the pipeline. But the big story now is that the government of Canada has stepped in and invoked a clause in a 1977 pipeline treaty that will likely shift the discussion to the federal level. Effectively, the treaty says that neither country will mess with the key pipeline assets of the other if a piece of a pipeline travels across country borders. Canada has stepped in because Line 5 is very important to Canada's energy industry and, thus, its consumers.

Making a bet

This particular project, which is expected to cost around $500 million, is only one piece of Enbridge's $22 billion capital spending plan between 2021 and 2023. So from that perspective, Line 5 is just one of many investment initiatives at the company. Even if all of this fighting increases the cost, which seems highly likely, it will still be a modest issue compared to the company's bigger plans.

However, the pipeline is an important revenue source, and one that is strategic to both the company and Canada. Should Line 5 be shut because of the water crossing in Michigan, it would be a very big issue for Enbridge. That helps explain at least part of the reason why the current dividend yield is toward the high end of the company's historical yield range.

ENB Dividend Yield Chart

ENB Dividend Yield data by YCharts

There's no particular way to handicap the outcome here, given the path of the pipeline and what it carries. That said, there is a clear bias against pipeline construction today -- the Keystone XL pipeline was recently canceled after years of effort to get key portions of the project approved in the United States, and it's not the only pipeline that's been dropped by developers because of regulatory and environmental pushback. However, Line 5 isn't a new pipeline, it's an update of an existing asset, which is different. Ongoing uncertainty is the final outcome. Add that on top of the negative view of anything tied to carbon fuels today, and you start to understand why Enbridge's yield is so high right now.

The big call

This is a truncated version of a very complex situation. But if Line 5 is shut down, Enbridge will have a problem on its hands, and so will investors. There will be both a financial side to that and one related to the company's image. So by owning this North American energy giant right now, you are basically betting that Line 5 gets updated as Enbridge plans. However, the final outcome, now that this has reached the federal level, could be years off. In other words, this issue will likely linger over Enbridge for a while longer, perhaps quite a while. 

For more aggressive investors, that might be an opportunity to buy Enbridge at what appears to be a relatively cheap level. For extremely conservative types, the uncertainty here could be enough to push the stock off of the buy list. Either way, Line 5 is a key issue that investors are talking about and needs to be watched.