Investors always have to consider the trade-offs they are making when they pick one investment over all of the others available to them. Right now the buy decision around Enbridge (NYSE: ENB) isn’t quite as strong as it was just 12 months ago. But this reliable dividend payer still has some positives to offer.

Here’s why Enbridge is still a buy for the right kind of income investor.

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What does Enbridge do?

Canadian-based Enbridge is a North American midstream giant. It owns the pipelines and other energy infrastructure that helps to move oil and natural gas around the world. This tends to be a very reliable business, driven by fees for the use of the company’s vital assets. The price of oil and natural gas aren’t nearly as important to the company’s financial results as the demand for these energy sources, which tends to remain high even when energy prices are low. The midstream business makes up roughly 75% of Enbridge’s earnings before interest, taxes, depreciation, and amortization (EBITDA).

Image source: Getty Images.

Another 22% of EBITDA comes from a collection of regulated natural gas utilities that Enbridge owns. It operates these businesses in both the United States and Canada. Given the regulated nature of these operations, they are also reliable cash-flow generators. Slow and steady growth is the norm here since the company needs to get government approval for capital spending plans and the rates it charges.

The remaining 3% or so of EBITDA is derived from a portfolio of clean energy investments. This is a small portion of the company, but it demonstrates the company’s big-picture goal of shifting its business along with the world around it. Given the long-term trend toward cleaner energy sources, this segment seems likely to grow over time. It also provides a hedge of sorts for investors worried about owning a carbon fuel-focused business.

All in, Enbridge has a reasonably attractive business structure. Now add in an investment-grade rated balance sheet, a roughly 6% dividend yield, and three decades worth of annual dividend increases (in Canadian dollars) and you can see why conservative investors would be interested in the stock right now. There’s just one problem. The stock has risen roughly 25% in a year and is up around 80% from its March 2020 lows.

Data by YCharts.

Not as attractive as it was, but still relatively attractive

First off, if you are a deep value investor you probably won’t find Enbridge all that attractive anymore. But that’s not how every investor invests. The business itself is still very attractive and the dividend yield is lofty on an absolute basis. In fact, at 6%, investors are nearly three-quarters of the way to the 10% return that most expect from the broader market. Add in the company’s long-term distributable-cash-flow growth target of around 5% a year and you get 10%, or more.

So, even after the stock price advance, there’s a reason to be optimistic about the return profile here. But that 6% dividend yield needs a bit more examination. If you are a dividend investor, you are looking at an S&P 500 index yield of just 1.2%. The broader energy sector’s yield is roughly 3.3%. By comparison Enbridge still looks like a great dividend option for long-term income investors.

To be fair, you can find other midstream companies with higher yields. Those alternatives aren’t likely to offer you the diversification of Enbridge. Or have the same reliable dividend history. Plus, Enbridge’s advance wasn’t exactly unique. Most pipeline stocks have risen dramatically since the sell-off in the early stages of the pandemic. And if you find a pipeline stock with a higher yield you might also find that it requires you to take on extra investment risk or the need to deal with a more complicated business structure (many midstream companies are limited partnerships while Enbridge is structured as a traditional company). For conservative income investors that probably won’t be worth it.

All things considered, Enbridge is still attractive

When you step back and look at Enbridge right now, there are still many good reasons a dividend investor would want to buy it. Is it as attractive as it was a year ago or during the last bear market? No. But that’s true of a lot of companies and a lot of Enbridge’s peers. If you are looking to generate a reliable stream of passive income from your portfolio this midstream giant should still be one of the top names on your buy list.

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Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.