Enbridge (TSX:ENB) is down considerably from the 2022 high and now offers an attractive dividend yield. Retirees seeking passive income and other investors targeting long-term total returns are wondering if ENB stock is oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) portfolio.
Earnings results
Enbridge generated solid third-quarter (Q3) results and is on track to meet its full-year guidance. Adjusted Q3 2023 earnings came in at $1.3 billion, or about $0.62 per share, compared to $1.4 billion, or $0.67 per share, in the same period last year. Enbridge reported distributable cash flow (DCF) of $2.6 billion in the quarter. This was slightly above the Q3 2022 amount.
For the first nine months of 2023, Enbridge generated $4.38 billion in adjusted earnings compared to $4.42 billion in 2022. DCF increased to $8.54 billion for the first three quarters from $8.32 billion last year.
Enbridge stock
Enbridge trades for close to $46 per share at the time of writing compared to $59 at the peak in 2022.
The drop is mostly due to rising interest rates. Income investors normally demand a risk premium from dividend stocks compared to the no-risk rate of return they can get from alternative investments, including Guaranteed Investment Certificates (GICs). With non-cashable GIC rates in the 5% to 6% range, there has been downward pressure on top dividend payers. Higher interest rates also drive up borrowing costs. Enbridge uses debt to finance part of its growth program, so the increase in debt expenses can cut into profits.
At this point, the pullback in the share price is likely overdone.
Growth projects
Enbridge uses a combination of acquisitions and development projects to drive revenue and cash flow growth. The company recently announced a US$14 billion deal to buy three natural gas utilities in the United States. Management already has 75% of the funding in place to cover the cash portion of the purchases.
In the past few years, Enbridge purchased an oil export terminal, secured a stake in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia, and bought the third-largest solar and wind project developer in the United States.
The diversification of the revenue stream should benefit investors over the long run. Enbridge’s secured capital program is currently about $24 billion. As the new assets are completed and go into service, there should be steady cash flow expansion to support the dividend.
Dividend stability
Enbridge increased the dividend in each of the past 28 years. At the current share price, investors can get a yield of 7.7%. Enbridge raised the payout by about 3% in each of the past two years, and a similar hike would be reasonable to expect for 2024.
Should you buy Enbridge now?
As soon as the Bank of Canada begins to reduce interest rates, there could be a big rebound in the share prices of top TSX dividend stocks. Enbridge looks cheap right now and pays an attractive dividend that should continue to grow.
If you have some cash to put to work in a TFSA or RRSP, this stock deserves to be on your radar.
