Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry with a current TSX market capitalization above $100 billion. The stock is off the 2023 lows but is still down 12% right now from where it was a year ago. Investors who missed the rebound through the fourth quarter (Q4) of 2023 are wondering if ENB stock is still undervalued 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.
ENB stock price
Enbridge trades near $49 at the time of writing compared to $59 at the high point in 2022, so there is decent upside potential, even after the bounce from the $43 the stock hit in early October last year.
The stock’s rebound over the past three months has occurred as the market shifted from fears of more rate hikes to expectations for interest rate cuts by the Bank of Canada and the United States Federal Reserve in 2024.
The central banks aggressively drove up interest rates in an effort to cool off a hot economy and to get the labour market back into balance with the goal of reducing high inflation. The rate of inflation in Canada has come down from about 8% in June 2022 to 3.4% for December 2023. This is still above the 2% target. The 3% level could turn out to be difficult to breach for some time, but the markets still seem to think that rate cuts are on the way to ensure a soft landing for the economy.
We will see what happens in the next few months, but Enbridge is probably a good stock to buy at the current price, even if there is more volatility on the horizon. Enbridge’s operations performed well in 2023, and the company is anticipating growth in earnings before interest, taxes, depreciation, amortization (EBITDA) and growth in distributable cash flow (DCF) in 2024.
The drivers should be the effects of new assets going into service from the $25 billion capital program, along with the impact from acquisitions that were completed last year and new deals that are expected to close in 2024. For example, Enbridge is in the process of finalizing a US$14 billion agreement to buy three natural gas utilities in the United States.
The company’s future growth should come from recent and additional investments in export facilities, renewable energy, and natural gas distribution. The oil and natural gas pipeline businesses will also remain core drivers of revenue.
Enbridge increased the dividend by 3.1% for 2024. That is the 29th consecutive annual dividend increase from the board, and more distribution growth should be on the way. At the current share price, investors can get a 7.4% dividend yield.
Should you buy ENB stock now?
Investors seeking reliable passive income inside a TFSA should probably consider adding Enbridge at this level and look to boost the position on another pullback. RRSP investors might also want to put ENB stock on their radar.
The share price could see some new turbulence if market expectations for rate cuts get pushed into 2025, but you get paid well to ride out the volatility. At the very least, the dividend should be rock solid.