Shares in North American energy infrastructure company Enbridge (NYSE: ENB) were up by almost 2.5% by midday today. The move comes after a Credit Suisse analyst upgraded the stock from underperform to neutral.
The upgrade follows some positive news flow regarding the French government's decision to select EDF Renewables and Maple Power (a joint venture between Enbridge and the Canadian Pension Plan Investment Board) to develop France's largest offshore wind farm near Normandy.
The winning of the tender for the offshore wind farm is significant for Enbridge's long-term growth aspirations and means its current dividend of $2.60 (yielding a whopping 7%) may be sustainable over the long term. With any stock yielding such a high amount, the natural question is, what is the market worried about?
The answer probably lies in Enbridge's fossil fuel exposure, which it still relies on for the overwhelming share of its profits. For example, the company generated 57% of its earnings from "liquids pipelines" (pipelines in the U.S. and Canada that transmit oil and other hydrocarbons) and 28% from gas transmission and mainstream, with around 12% coming from gas distribution and storage. Renewable power generation contributed just 3%.
Still, Enbridge is investing in areas like wind power, carbon capture, hydrogen, and renewable natural gas to finesse the transition to the clean energy economy and make itself relevant within it.
The Normandy offshore wind farm deal isn't a game changer in itself. Still, it is significant enough to give investors confidence in management's plans to deploy capital for investment in areas like renewable energy and away from being overly reliant on "liquids pipelines" over the long term.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
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