Investors can prime their portfolio for success by building on a collection of core growth stocks. These are wonderful businesses with both a sustainable competitive advantage and a long growth runway. Enbridge Inc (USA) (NYSE:ENB)
is one of the few companies that meet both of those requirements.
Why it's a core stock
Enbridge Inc (USA) (NYSE:ENB) moves energy. These are the guys who ship energy from the wellhead to the refinery and into your home. The company operates Canada's largest transportation network with over 15,000 miles in pipelines and is responsible for exporting two thirds of Western Canada's crude oil production.
But what was once a stable industry is now in the midst of a major expansion. According to the IEA, North American energy production is expected to grow by 3.9 million barrels per day (b/d) between 2012 and 2018. The surprise upswing is the result of double-digit growth from the Alberta oil sands, North Dakota Bakken, and Texas Eagle Ford.
But here's the problem: There isn't enough pipe to move all of this oil from wellhead to market. Across the continent, oil is log-jammed at terminals and the situation is getting worse.
Enbridge Inc (USA) (NYSE:ENB) is the solution to this problem. Over the next four years the company has secured $28 billion in new expansion projects and is projected to grow earnings 10% annually into the later part of the decade. This is a secular trend that won't disappear the next time congress debates the debt ceiling or a sour European debt auction roils the markets.
But the real benefit of investing in a pipeline company like Enbridge Inc (USA) (NYSE:ENB) are the tall barriers to enter the business. Once you have a pipe in the ground you essentially have a monopoly. This is a highly regulated industry which makes it prohibitively expensive for new competitors to enter the market.
This means two thing for shareholders: big returns and juicy dividends. Enbridge Inc (USA) (NYSE:ENB) has paid a dividend for 60 consecutive years and has grown its payout 12.3% annually over the last decade.
Risks to watch out for
Of course as with any good investment, there's always a number of risks that investors have to be on the look out for.
Political gridlock is a huge obstacle to the industry's growth. TransCanada Corporation (USA) (NYSE:TRP)'s
Keystone XL pipeline illustrates this problem perfectly. If approved, Keystone would transport 830,000 b/d of Alberta crude oil to refineries on the Gulf coast. However, the project faces stiff resistance from environmentalists and Keystone still requires approval from the U.S. State Department.
But recently we've seen encouraging signs. In June, U.S. President Barack Obama declared that he would reject any project that has a 'net' negative effect on the environment. Many analysts see this as a 'wink and a nod' to the industry that Keystone will be approved. This is good news for all pipeline companies.