RRSP Investors: Is Enbridge (TSX:ENB) Stock Too Cheap to Ignore?

Enbridge (TSX:ENB)(NYSE:ENB) appears oversold. Should RRSP investors buy this cheap dividend stock at the current price or wait?

| More on:
pipe metal texture inside

Image source: Getty Images

The market crash of 2020 might be the the buying opportunity of a lifetime for RRSP investors.

Cheap stocks

The TSX Index dropped more than 35% in a matter of weeks, falling from nearly 18,000 on February 20 to below 11,250 on March 23. Since then, the market has recovered some lost ground. At the time of writing, the TSX Index is at 12,800.

The sell-off hit stocks across all sectors. Some will not recover, as they already faced severe challenges ahead of the coronavirus-driven plunge. Industry leaders with strong balance sheets, however, appear oversold, even after the recent rebound.

Economic turmoil is expected in the near term and risks remain, so investors should brace for ongoing volatility. The impact on businesses and consumers is severe, and it will take time for government aid to put a floor under the crisis and get the economy back on track.

That said, investors have a chance to pick up great dividend stocks with reliable distributions that now offer very attractive yields.

RRSP advantage

Canadians use their RRSP to hold stocks for decades. History suggests that buying top companies during market corrections can boost long-term RRSP returns. Dividends are not taxed while the funds are inside the RRSP, so investors can use the full value of distributions to buy new shares. This takes advantage of a powerful compounding process that can grow a portfolio significantly over time.

Let’s take a look at one top Canadian dividend stock that might be an interesting pick right now for a balanced RRSP portfolio.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) is a leader in the North Amercian energy infrastructure sector. The mere mention of the word energy might send a chill down your spine. It’s true the Canadian and U.S. oil producers are in trouble. Western Canadian Select (WCS) oil currently trades at just US$6 per barrel compared to US$40 in January. West Texas Intermediate (WTI) is down to US$20 per barrel compared to the 2020 high around $63.

Producers are reducing capital programs, and some players will disappear or be acquired. However, Enbridge’s top clients are leading players in the industry and most will maintain output through the downturn. Enbridge simply transports the commodities, so it has limited direct exposure to the changes in oil and natural gas prices.

Once the global economy starts to recover, oil demand will rise. In addition, the price war going on between Saudi Arabia and Russia will eventually end. The two countries face dire long-term financial consequences if oil prices remain at these levels.

Enbridge has guidance in place for growth in distributable cash flow of 5-7% per year over the medium term. The 2020 and 2021 numbers might be reduced, but the dividend should be very safe.

Should you buy Enbridge now?

The stock trades at $39 per share compared to $57 in February, so there is significant upside potential when the market recovers. Bargain hunters who stepped in at $33 are already sitting on nice gains.

Those that buy today can still get a great dividend yield of 8.25% and simply tuck the stock inside their RRSP for the next 20 years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Andrew Walker owns shares of Enbridge.

More on Investing

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

These 3 Growth Stocks Are on Sale and Set to Surge

Some growth stocks are on sale right now that offer massive long-term potential for investors. Here's a trio to consider…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

stock analysis
Investing

“GARP” Investing: 3 Can’t-Miss Stocks to Buy Now

goeasy (TSX:GSY) and other low-cost growth stocks could make your portfolio a market beater over the long run!

Read more »

calculate and analyze stock
Investing

My Take: The Best TSX Stock to Buy With $1,000 in March 2024

Here's why Restaurant Brands (TSX:QSR) remains a top TSX stock long-term investors should buy right now.

Read more »