Is Enbridge a Buy for its 8.7% Dividend?

Enbridge Inc (TSX:ENB)(NYSE:ENB) has fallen 33% in just the past month. The blue-chip energy stock recently hit a 52-week low as low oil prices are plaguing oil and gas stocks in Canada yet again.

For dividend investors, it’s an opportunity to buy the stock for an even higher dividend than normal. The company recently hiked its quarterly payouts to $0.81 and that means investors can now earn an annual yield of 8.7% per year.

That’s an astronomical payout. However, it’s also one that’s not likely to remain at that level. If oil prices don’t recover and the price war involving Saudi Arabia and Russia continues, it may only be a matter of time before Enbridge decides that it needs to cut its dividend.

A low price of oil will cause more problems for the industry and that will inevitably trickle down to Enbridge as well.

If, however, prices do rebound, then shares of Enbridge will rise and this high dividend yield could be gone in no time. If the stock climbs back to $50, then the dividend yield goes back to 6.5%. It’s still a high payout, but it’s more than a few percentage points lower than where it is today.

It’s a bit of a gamble for dividend investors because the current situation is the least likely to persist over the long haul.

Unfortunately, when you also factor in the coronavirus into the equation, there’s more reason for investors to be bearish than bullish on Enbridge and the oil and gas sector in Canada.

The safer option for investors is to wait for there to be signs that there’s some strength in oil prices before taking a chance on a dividend stock like Enbridge that has so much exposure to oil and gas.

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