ENB's 7.2% Yield Looks Thin After 25% Rally

Midstream investors who bought Enbridge (ENB) during the 2023 selloff collected an 8.5% yield. The stock has since rallied about 25%. The yield now sits near 7.2%. That shift changes the risk equation for new buyers.

AlphaScala's proprietary scoring system rates ENB at 58 out of 100, a Moderate label that places it in the middle of the Energy sector. The score reflects dividend stability and asset quality but penalizes valuation and momentum. At 19 times forward earnings, ENB trades above the midstream peer median of 16 times. The yield gap against Treasuries has narrowed. Two years ago ENB offered more than 400 basis points over the 10-year note. Today the premium is roughly 290 basis points.

The bull case for midstream rests on structural demand growth from LNG exports and data-center power loads. Enbridge's Mainline system and its 28% stake in the DAPL pipeline give it direct exposure. The bear case is simpler. The stock already prices in that growth. Consensus forecasts show distributable cash flow per share growing at a low single-digit rate over the next two years. That trajectory does not justify the current multiple unless the dividend alone delivers the total return.

For an existing holder the math is fine. ENB pays a reliable dividend that grows 3% a year. The coverage ratio has held above 1.4 times distributable cash flow, a comfortable buffer. For a buyer at today's price the margin of safety is thinner. The same capital in a Treasury bill yields 4.3% with zero duration risk. A peer like Kinder Morgan trades at 15 times earnings with a similar growth profile. The risk-adjusted case for owning ENB through a potential rate-cutting cycle is weaker than it was when the stock yielded 8%.

The next catalyst is the second-quarter earnings report due in early August. The key metric is the coverage ratio. A drop below 1.3 times would force the market to reassess the dividend's safety. That is a low-probability event. Enbridge has maintained coverage above 1.4 times for years. The real risk is that the stock has run out of catalysts to push it higher. The yield gap that looked too wide to ignore at 8% now looks priced for perfection.

ENB serves roughly 4 million retail gas customers and moves about 30% of crude produced in the U.S. and Canada. That scale provides a floor. The question is whether the floor also acts as a ceiling until earnings growth catches up with the multiple.