The latest leg of the drop in the share price of Enbridge (TSX:ENB) has contrarian investors wondering if ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income or a Registered Retirement Savings Plan (RRSP) targeting total returns.
Enbridge overview
Enbridge is a giant in the North American energy infrastructure sector, with a current market capitalization of about $94 billion. The company is best recognized for its core oil pipeline business, which moves roughly 30% of the oil produced in Canada and the United States. This remains an important part of the company, but Enbridge operates a wide variety of assets that broaden the revenue stream. Enbridge’s natural gas transmission network moves 20% of the natural gas used in the United States. The natural gas utility businesses in Canada deliver fuel to millions of homes and commercial clients.
In recent years, Enbridge has invested in export opportunities to capitalize on the growing global demand for North American energy. Enbridge purchased an oil export terminal in Texas for US$3 billion in 2021. Last year Enbridge took a 30% stake in the new Woodfibre liquified natural gas (LNG) facility being built on the coast of British Columbia. In addition, Enbridge has a growing renewable energy division and is dipping its toes in new segments, including hydrogen and carbon sequestration.
ENB stock trades under $47 per share at the time of writing, recently hitting a new 12-month low. The share price was as high as $59 at one point last year, so there is decent upside potential for contrarian investors.
The pullback appears overdone, considering the business generates steady revenue from essential assets. A recent deal with oil producers will keep the Mainline network full for several more years, and Enbridge’s $17 billion capital program should boost revenue and cash flow as the new assets go into service.
Demand for jet fuel is set to soar as airlines place orders for hundreds of new planes to meet a rebound in travel bookings. Gasoline and diesel fuel consumption will rise as commuters return to offices and trucking companies try to keep up with growing transportation orders to deliver manufacturing and finished goods.
The transition to electric vehicles (EVs) will eventually put a dent in fuel consumption in some advanced economies, but the global outlook for oil demand over the coming years remains robust. The EV uptake will likely take a lot longer to occur, as car buyers wait for the installation of reliable and ubiquitous charging stations.
Dividends
Enbridge raised its dividend in each of the past 28 years. The days of double-digit annual percentage hikes are probably over, but yearly increases of 3-5% are probably reasonable to expect, supported by the capital program and any strategic acquisitions that occur.
At the time of writing, investors can get a 7.6% dividend yield from Enbridge stock.
Is Enbridge stock a deal?
Ongoing volatility should be expected until the government stops raising interest rates. However, contrarian investors targeting decent long-term total returns might want to start nibbling and look to add to the position on any additional downside. Enbridge should be a good stock to buy today for investors seeking reliable, high-yield passive income.
