Enbridge (TSX:ENB) recently dipped to its lowest price in two years. Investors who missed the rally after the 2020 crash are wondering if ENB stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on high-yield passive income.
Enbridge overview
Enbridge is a giant in the energy infrastructure sector. The company moves 30% of the oil produced in Canada and the United States. The purchase of an oil export terminal in Texas for US$3 billion in 2021 expanded the oil operations to take advantage of rising international demand.
Enbridge’s natural gas transmission network carries 20% of the natural gas used in the United States. The company recently announced a deal to buy three American natural gas utilities for a total of US$14 billion. The move bulks up the gas utilities business that already serves more than three million customers in Canada and will make Enbridge the largest operator of natural gas utilities in North America.
Enbridge is also investing in liquified natural gas (LNG) export opportunities, including its stake in the Woodfibre natural gas plant being built on the coast of British Columbia. The extensive natural infrastructure positions Enbridge well to capitalize on the anticipated shift to hydrogen in the coming years.
The 2022 acquisition of an American renewable energy developer that has assets in North America and Europe should lead to the expansion of Enbridge’s existing solar and wind portfolio.
Enbridge stock
Enbridge trades near $47 per share at the time of writing. The stock was $59 in June 2022.
Enbridge isn’t an oil and gas producer. As such, changes in oil and natural gas prices have a limited direct impact on Enbridge’s revenue and cash flow. As long as demand is strong and volumes are high through the pipelines, Enbridge generates steady cash flow.
The drop in the stock price is largely due to soaring interest rates in Canada and the United States. Higher borrowing costs can put a dent in profits and reduce cash available for distributions. Rate hikes are likely nearing their peak, however, so the downside should be limited at this point.
Enbridge dividend
Enbridge increased its dividend in each of the past 28 years. The addition of the three U.S. utilities, along with the current $17 billion capital program, should drive cash flow growth to support ongoing increases. At the time of writing, the dividend provides a 7.5% yield.
Time to buy Enbridge?
Enbridge looks oversold at this level. As soon as interest rates start to decline, top TSX dividend stocks like Enbridge should bounce. If you have some cash to put to work in a TFSA targeting passive income, Enbridge deserves to be on your radar.
