For Canadian investors, the Tax-Free Savings Account (TFSA) limit for 2020 stands at $6,000, bringing the total contribution limit for individuals who have never invested in TFSA since its inception in 2009 to $69,500.
For example, if you were 18 or older in 2009 and have never contributed to your TFSA, then in 2020 you can allocate $69,500 to the account. On the other hand, if you have reached the TFSA contribution limit of $63,500 (between 2009 and 2019) then you have an additional $6,000 to invest in 2020.
Investing in a tax-free investment vehicle should be a top priority for investors. The TFSA is a registered account that allows for tax-free withdrawals, while the Registered Retirement Savings Plan (RRSP) has a tax on withdrawals. TFSA should be viewed as a long-term investment account that can be used to create substantial wealth.
But where do you allocate your funds? Currently, the markets are trading at record highs. However, some stocks are still trading at an attractive valuation with significant upside potential.
One such stock is Enbridge (TSX:ENB)(NYSE:ENB).
Enbridge stock is trading 18% below record highs
Enbridge is a Canada-based energy transportation and distribution company. It is engaged in delivering energy and operates through five business segments such as Liquids Pipelines, Gas Pipelines & Processing, Gas Distribution, Energy Services, and Green Power & Transmission.
Enbridge is a domestic giant. With a market cap of $108.9 billion and an enterprise value of $187.96 billion, it’s the largest energy company in Canada. Enbridge stock has returned 12.6% in the last year. It has gained 25% since August 2019, but is still trading 18% below its record highs.
The energy sector in Canada was decimated in 2014 as oil prices crashed due to a strong U.S. dollar and lower demand resulting in oversupply. The global oil prices fell from US$100/barrel in 2013 to below US$50/barrel in 2014. The energy sector is highly regularized in Canada, which means the limited pipeline capacity has resulted in lower regional prices.
Enbridge is North America’s largest pipeline operator with a wide network. Energy producers bank heavily on pipelines to transport oil as it remains the cheapest, fastest and safest way to do so, making Enbridge an enviable long-term bet.
Revenue, growth, and valuation
Analysts expect Enbridge to increase sales by 7.7% to $49.97 billion in 2019 and 0.4% to $50.16 billion in 2020. Comparatively, its earnings are estimated to rise by an annual rate of 6.2% in the next five years.
The stock has a market cap to sales ratio of 2.2, a price to book ratio of 1.77, and an enterprise value to sales ratio of 3.8. It is trading at a forward price to earnings multiple of 20.4, which is reasonable, especially after accounting for a juicy forward dividend yield of 6%.
Enbridge has little leeway to increase dividend payments, as the payout ratio at the end of Q3 stood at 99.83%. The company has a debt balance of $68.43 billion and a large part of its operating cash flow (around $10 billion) will be directed to principal and interest payments.
Enbridge is a stock that has made a strong comeback in the last two years. It is trading at an attractive valuation and might move higher in 2020.
