TFSA Anchors: Enbridge (TSX:ENB) Plus 1 Utility Stock

TFSA investors can create a profitable but defensive portfolio in 2022 by combining two dividend aristocrats.

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All interest, earnings, or gains inside a Tax-Free Savings Account (TFSA) are tax-free provided users don’t over-contribute or carry on a business in it. Also, investing in foreign assets or stocks isn’t advisable because of the 15% withholding tax. Today, Canadians need the TFSA more than ever.

The tax-advantaged investment account is the best vehicle to earn additional income to combat or hedge against inflation. However, TFSA investors should be more risk-averse in 2022. The choice of anchors is important to ensure non-stop income streams.  

There should be less worry if Enbridge (TSX:ENB)(NYSE:ENB) is the core holding with Emera Inc. (TSX:EMA) as back-up. Besides their recession-resistant qualities, both dividend stocks offer growing dividends. Furthermore, the payouts should be rock-steady even during a bear market.

Low business risk

Enbridge fell 0.7% to $55.82 on March 16, 2022, but the top-tier energy stock remains up 14.7% year-to-date. The $115.48 billion energy infrastructure belongs in the highly volatile sector but operates like a utility company, a competitive advantage.

Another reason to make Enbridge a TFSA anchor is its dividend growth streak of 27 consecutive years. The diversified asset base is now worth around $180 billion. Since 98% of the assets are contracted, if not mostly cost-of-services contracts, cash flows are predictable.

With $14 billion worth of assets placed in service last year, management expects 5% to 7% growth (CAGR) through 2024. According to S&P Global Ratings, the assets of Enbridge are an integral part of North America’s energy needs. The ratings agency rating for the company is excellent. For Moody’s and Fitch, Enbridge is a low business risk.

Apart from the preservation of financial strength and flexibility, Enbridge prioritizes sustainable return of capital to shareholders via dividend increases. The company also focuses on low-capital intensity and utility-like growth for sustainable organic growth. For 2022, management expects continued high utilization of all operating businesses.

Performance-wise, the stock’s total return in 20.02 years is 1,044.67% (12.95% CAGR). If you invest today, the dividend is 6.07%.

95% regulated assets

Emera is the perfect complement to Enbridge in a TFSA. Because of its $8.4 billion capital plan (2022 to 2024), management forecasts a 7% to 8% rate base growth through 2024. As such, the $15.87 billion regulated energy and services company has an annual dividend growth guidance of 4% to 5% until 2024.

The investment thesis for Emera is the long-term growth in earnings, cash flow, and growing dividends to shareholders. Electricity utilities account for 84% of its portfolio of high-quality assets. Gas utilities complete the remaining 16%. Notably, 95% of the assets are regulated.

The seven utility firms under Emera’s umbrella generate $5.8 billion in revenues. About 63% in earnings come from the United States. Currently, the customer count is 2.5 million. Regarding the capital spend distribution for its capital plan, 99.7% will go to regulated assets. Florida will receive 67%, while Atlantic Canada gets 23%.

At $60.02 per share (-4% year-to-date), Emera pays an attractive 4.34%.

Defensive portfolio

TFSA investors can’t be risk-takers in the current environment. Enbridge is a must-own stock today, but adding Emera should create a defensive income stock portfolio.

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.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends EMERA INCORPORATED and Enbridge.

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